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About this book

Based on recent advances in economics, especially those in behavioral economics, this book elucidates theoretically and empirically the mechanism of time-inconsistent decision making that leads to various forms of self-destructive behavior. The topics include over-eating and obesity, over-spending, over-borrowing, under-saving, procrastination, smoking, gambling, over-drinking, and other intemperate behaviors, all of which relate to serious social problems in advanced countries.

In this book, the author attempts to construct a bridge between the basic theory of time discounting, especially as of hyperbolic discounting, and empirically observed “irrational (non-classical)” behavior in the various contexts just mentioned. The empirical validity of the theory is discussed using unique micro data as well as public macro data. The book proposes prescriptions for individual decision makers, whether sophisticated or naïve, to make better choices in self-control problems, and also provides policy makers with useful advice for influencing people’s decision making in the right directions.

This work is recommended not only to general readers who seek to learn how to attain better self-regulation under self-control problems. It also helps researchers who seek an overview of positive and normative implications of hyperbolic discounting, and thereby reconstruct economic theory for a better understanding of actual human behavior and the resulting economic dynamics

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Table of Contents

Frontmatter

Chapter 1. The Paradox of Self-Destructive Choices

Abstract
Many pathological problems that are prevalent in modern society, such as undersaving, overborrowing, credit-card bankruptcy, and lifestyle-related diseases (obesity, smoking, drug abuse, and gambling addiction), are all closely related to the choices made by the people who constitute the society. People sometimes overborrow money in order to spend it on leisure and/or luxury items, overeat, spend indulgent times, smoke, and gamble to the point of destitution. In all of these situations, the results of the choice to engage in such behaviors have adverse effects on the individual’s future. Moreover, self-harmful behavior is not always limited to the extreme cases described above. For example, on occasion, we sometimes stay up drinking until late at night even though we have a meeting early the next morning. As another example, rather than completing an important task with an impending deadline, we often engage in trivial tasks such as cleaning our work desk, checking e-mails, and self-grooming.
Shinsuke Ikeda

Chapter 2. Varying Impatience

Abstract
In standard economics, or “neo-classical economics,” discussions have been restricted to the paradigm of the “Discounted Utility Model.” This theory assumes that people maximize the discounted sum of the gratification flows at each point in time, where future gratifications are presupposed to be discounted at a constant rate in any situation and for any intertemporal-choice problem. However, as I discussed briefly in the previous chapter, 40 years of empirical research has shown that a decision-maker’s personal discount rate varies depending on choice conditions (e.g., differing amounts and/or delays) and the context in which the intertemporal-choice problem is framed. If this fluctuation only occurred in exceptional situations and did not introduce biases into the decision-making process, it would not be a serious problem. However, as I illustrate below, the phenomenon is associated with many, and in some cases very serious, “irrational” behaviors and social phenomena in everyday life. In economics, a phenomenon that the existing standard theory (i.e., the paradigm) cannot explain without positing unrealistic assumptions is called an (Loewenstein and Prelec 1992). The phenomenon that personal discount rates vary greatly depending on intertemporal-choice conditions and the contexts of those choices is called an intertemporal-choice anomaly or a .
Shinsuke Ikeda

Chapter 3. Hyperbolic Discounting and Self-Destructive Behaviors

Abstract
In the previous chapter, I explained that people’s degrees of impatience are affected by various choice conditions and frames, all of which cause a variety of anomalous phenomena in their intertemporal choices and behaviors that traditional economics cannot explain. In this chapter, I shall deal with hyperbolic discounting or present bias. As explained in Chap. 1, under hyperbolic discounting, more immediate gratifications are discounted at higher discount rates, and people are less patient in waiting for less delayed rewards.
Shinsuke Ikeda

Chapter 4. Self-Control Problems of the Dual Self

Abstract
In the previous chapter, I explained hyperbolic discounting, a source of behavioral bias which people exhibit when making intertemporal choices. Taking into account 10 years into the future while discounting tomorrow is an act that reflects humans’ dual nature. Under hyperbolic discounting, when the benefit (or the cost) of a choice is near at hand, people become motivated to prioritize the immediate benefit and revise the original plan, because the subjective discount rate suddenly increases, making them impatient. Of course, people do not always give in to such temptation and choose the “easy” option. In this chapter, I would like to refer to some data, theoretically consider what decision-making problems arise under hyperbolic discounting, and examine how we take actions to deal with these problems.
Shinsuke Ikeda

Chapter 5. Overborrowing, Overeating, and Addictive Behavior

Abstract
I would like to think about self-destructive choices from the perspective of discounting—hyperbolic discounting in particular—which governs intertemporal choices. Specifically, I will take up behavioral problems regarding (1) economic decision-making that involves undersaving and overborrowing, (2) health-related decision-making that involves overeating and obesity, and (3) decisions that relate to addictive consumption, such as smoking, drinking, and gambling. I shall examine them one by one.
Shinsuke Ikeda

Chapter 6. Coping with Self-Destructive Behavior

Abstract
The standard economics known as neoclassical economics assumes that humans are quite rational subjects who always act consistently, like a machine, when solving an optimization problem. Therefore, in neoclassical economics, there are no such things as self-control problems, inconsistent behaviors, or regrettable behaviors. If there is a problem, it occurs only in cases where the choices are distorted due to incomplete information or some kind of transaction constraints or in cases (such as those involving pollution) where someone’s choice bypasses the market and directly influences others (in what is called an externality). As long as there is no such problem, our choices should be rational, either privately or socially, so that efficient resource allocation would be attained through the price mechanism of the market.
Shinsuke Ikeda

Erratum to: The Economics of Self-Destructive Choices

Without Abstract
Shinsuke Ikeda

Backmatter

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