Overestimating Self_Control: Evidence from the Health Club Industry / Stefano DellaVigna, Ulrike Malmendier.

Format:

Book

Author/Creator:

DellaVigna, Stefano.

Contributor:

National Bureau of Economic Research.

Malmendier, Ulrike.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10819.

NBER working paper series no. w10819

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Overestimating Self_Control

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

Experimental evidence suggests that people make time-inconsistent choices and display overconfidence about positive personal attributes. Do these features affect consumer behavior in the

market? To address this question we use a new panel data set from three US health clubs with information on the contract choices and the day-to-day attendance decisions of 7,978 health club members over three years. Members who choose a contract with a flat monthly fee of over $70 attend on average 4.8 times per month. They pay a price per expected visit of more than $17, even though a $10-per-visit fee is also available. On average, these users forgo savings of $700 during their membership. We review many aspects of the consumer behavior, including the interval between last attendance and contract termination, the survival probability, and the correlation between different consumption choices. The empirical results are difficult to reconcile with the standard assumption of time-consistent preferences and rational expectations. A model of time-inconsistent agents with overconfidence about future patience explains the findings. The agents overestimate the future attendance and delay contract cancellation whenever renewal is automatic. Salesman pressure and overstimation of future efficiency are the leading alternative explanations.

Notes:

Print version record

October 2004.