The dual self model of consumer decision making
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The dual self model of consumer decision making

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An introduction to the economic concept of the dual self-consumer

An introduction to the economic concept of the dual self-consumer

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  • Use clickers. Write down percentages for discussion.
  • Use clickers. Write down percentages for discussion.
  • Use clickers. Write down percentages for discussion.
  • Use clickers. Write down percentages for discussion.
  • D. Read (Leeds U.) & B. van Leeuwen (Leeds U.), 1998, Predicting hunger: The effects of appetite and delay on choice. Organizational behavior and human decision processes, 76, 189-205.
  • See Laibson, David, “Golden Eggs and Hyperbolic Discounting, Quarterly Journal ofEconomics, 112 (1997), 443–477.Robson, A. J. (2002). Evolution and human nature. The Journal of Economic Perspectives, 16(2), 89-106.

The dual self model of consumer decision making The dual self model of consumer decision making Presentation Transcript

  • Introduction to the dual-self model of choice
    Dr. Russell James III
    Texas Tech University
  • An alternative model
    Previous discussion shows that the rational, utility-maximizing assumption for consumers is not always true.
    So, now what?
    Throw it out the door?
    But, it often makes accurate predictions
    A modification from behavioral economics
  • “Our theory proposes that many sorts of decision problems should be viewed as a game between a sequence of short-run impulsive selves and a long-run patient self.”
    Drew Fudenburg (Harvard U.) and David K. Levine (Washington U.), 2006, A dual-self model of impulse control. American Economic Review, 96(5), 1449-1476.
  • Fudenberg & Levine (2006)
    Long-run (patient) self
    • This side tries to maximize utility across time
    Short-run (impulsive) selves
    • Sequential selves that exist only for a brief time
    • Each cares only about immediate experience
  • Experiment Time!
    This is real. One of you will be picked to receive one of the choices you selected.
  • Choice One
    Pick one
    You can receive $1.00 (cash) on the second to last day of this class.
    You can receive $1.05 (cash) on the last day of this class.
  • Choice Two
    Pick one. One week prior to the last day of class, you can have during class either
    Tangerine
    Chocolate Bar
    The dollar value of both is identical. (Of course, the tangerine is a healthier choice.)
  • It’s now time!
    Get ready, someone is about to get a nice giveaway!
  • Choice Three
    Pick one. Right now, you can have either
    Tangerine
    Chocolate Bar
    The dollar value of both is identical. (Of course, the tangerine is a healthier choice.)
  • Choice Four
    Pick one
    You can receive $1.00 (cash) right now.
    You can receive $1.05 (cash) during the next meeting of this class.
  • Research Results
    Read & van Leeuwen (1998). 200 participants. People who were not hungry, chose the unhealthy snack for delivery in one week
    26% of the time
    They chose the unhealthy snack for immediate consumption
    70% of the time
    ←Next Week
    Right Now ->
    26%
    70%
  • Dual-self
    Long-run (patient) self
    • This side tries to maximize utility across time
    Short-run (impulsive) selves
    • Sequential selves that exist only for a brief time
    • Each cares only about immediate experience
  • Discussion
    Short-run (impulsive) selves
    Does the short-run self care about
    • Future consumption next week?
    • Future health consequences?
    • Immediate consumption choice?
    ←Next Week
    Right Now ->
    26%
    70%
  • Discussion
    Discuss with a neighbor and vote in a moment.
    Does this result fit better with simple rational decision-making or a two-system approach?
    Simple rational decision making
    Two system “dual-self” decision making
    (long-run/patient self and short-run/impulsive selves)
    ←Next Week
    Right Now ->
    26%
    70%
  • Class vote comparison
    How many voted for chocolate at the end of the semester?
    Fall 2009 – 62.7% (n=86)
    How many voted for chocolate right now?
    Fall 2009 – 64.8% (n=74)
  • Hyperbolic discounting
    Would you rather receive $100 right now or $101 in a week? Most people choose $100 right now.
    But when the choice is between $100 a year from now and $101 in a year and a week from now, most people choose $101 in a year and a week.
    This is time inconsistent, as both choices involve delaying by one week for $1.
    Note also that choosing $100 right now implies an interest rate charge of 1% per week or APR of 52%
  • Discussion
    Short-run (impulsive) selves
    Does the short-run self care about
    • Immediate money?
    • Two different future money options?
    Now
    v. later
    Later v.
    much later
  • Class vote comparison
    How many voted to take the $1 on the second to last day of the class (instead of $1.05 on the last day)?
    Fall ‘09: 32.2% (n=87)
    How many voted to take the $1 right now (instead of $1.05 in the next class meeting)?
    Fall ‘09: 66.3% (n=86)
    What is the implied interest rate being charged to those who chose the immediate $1?
    Next class in 2 days. 5% difference. APR = (365/2) X 5% ≈912%
  • Thoughts to ponder
    Could the willingness of some to ignore a 920% interest rate for immediate reward have implications for consumer use of credit?
    Could the variations in the healthiness of food choices have implications for consumer food choices?
    More later…
  • Slides by:
    Russell James III, J.D., Ph.D., CFP®
    Associate Professor
    Division of Personal Financial Planning
    Texas Tech University
    russell.james@ttu.edu
    Please use these slides!
    If you think you might use anything here in a classroom, please CLICK HEREto let me know. Thanks!
    The outline for this behavioral economics series is at
    http://www.slideshare.net/rnja8c/outline-for-behavioral-economics-course-component