Economic Theories of Intertemporal Choice and Media Proliferation

Northwestern University, Evanston IL

Investigators

Abstract

The project includes two research projects in economic theory. One concerns how to model temptation and the second concerns polarization of beliefs. Temptation occurs in contexts where an individual understands that he may make future choices that are not in line with his or her long-run objectives. A simple example is food consumption; while someone may decide today to lose weight, actually acheiving this objective means facing daily temptation to eat unhealthy foods. While temptation is a universal experience, the formal economic model of how individuals make decisions does not include the possibility of temptation. Developing richer economic models that includes temptation allows us to better understand a wide range of human behavior that contributes to problems like obesity. One way that individuals deal with temptations is by restricting the range of their future choices through unbreakable commitments they make today. The principal investigator builds and analyzes a formal mathematical model of how people make such commitments assuming that individuals are fully rational. In the model, there are two costs of temptation for individuals: the internal cost of attempting to resist the temptation and the effect of temptation on actual choice. The investigator analyzes the model under two different assumptions about the size of these costs. He first examines the case where the cost of resisting temptation is so high that the individual always succumbs to temptation. He then considers the case where the cost of temptation is lower, so an individual can resist temptation even without a commitment. In both cases the model allows for uncertainty about the extent and type of temptation that might occur. The second project is also formal economic theory using mathematical modeling techniques. Here the PI develops and analyzes a model of how media bias may affect viewers' beliefs and decisions. The model starts with the assumption that individual voters are fully rational and seek information. They have a variety of information sources. They know that these sources (eg, the media) are biased, but they do not know the exact bias of a particular source. The project analyzes how the proliferation of media, each with a distinct bias, changes voter beliefs and decision outcomes. The goal is to explore whether in general the social costs of the change in beliefs due to media proliferation are not directly from the decisions made, but through losses in the process: either through wasteful competition for control or less efficient communication.