Doctoral Dissertation Research in Economics: Missing Commitment: Uncertainty, Flexibility and Relationships

University Of California-San Diego, La Jolla CA

Investigators

Abstract

Missing Commitment: Uncertainty, flexibility, and relationships Present-biased decision making may result in various negative outcomes, such as procrastination or under-saving. Commitment devices are a natural way to adjust inefficient behavior that stems from present-bias, yet we see very little take-up of commitment. A recent vein of economic literature focuses on explaining this "missing commitment". The key idea behind this project is that uncertainty, both about a person?s self-control and about costs she may face in the future, might be driving low commitment take-up. In this research, I attempt to establish that people are uncertain about their self-control, that uncertainty explains low commitment take-up, that flexible commitment devices may help increase commitment take-up, and that a relational component may make flexible commitment devices more valuable and effective. The results of this research can help recommend policies that will improve the take-up and efficacy of commitment devices to mitigate inefficient behavior that arises from present bias. The results have applications in several areas, including savings, health, education, and training. Further, we see that informal commitment exists in developing countries where there may be barriers to implementing formal commitment devices. By isolating a relational mechanism that makes informal commitment effective, we can help implement feasible commitment devices in more diverse settings. In the first experiment, I deviate from the current experimental literature and hypothesize that people have distributional beliefs about their present-bias instead of point-beliefs. I show that this uncertainty can explain why a person whose elicited point-belief of ß suggests that he should commit but may rationally choose not to commit. Using a lab experiment, I attempt to establish that people have distributional beliefs about their self-control, elicit the shape of their distributional beliefs, and examine whether subjects? beliefs are consistent with their commitment take-up. What we deem missing commitment may actually be a reluctance to commit due to uncertain self-control. In the second experiment, I test whether uncertainty about costs prevents take-up of traditional, inflexible, commitment devices and whether adding state-dependent flexibility to commitment options encourages take-up. Further, I introduce a treatment in which I measure whether the value of a commitment device is higher if we introduce a relational component, a main element of informal commitment devices. I isolate and test a mechanism by which relational commitment may be effective. The intellectual merit of this proposal is that it contributes to the recent literature on missing commitment. Additionally, establishing that people have distributional beliefs about their self-control has important implications for how we calculate commitment value and more generally how we model present-biased decision problems. I extend the literature by introducing a more general and possibly more descriptive form of naivety by allowing for uncertain beliefs.