Browsing by Subject "self-control"

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Open Access
A Generalizable Scale of Propensity to Plan: The Long and the Short of Planning for Time and for Money
(2010) Lynch, John G; Netemeyer, Richard G; Spiller, Stephen A; Zammit, Alessandra
Planning has pronounced effects on consumer behavior and intertemporal choice. We develop a six-item scale measuring individual differences in propensity to plan that can be adapted to different domains and used to compare planning across domains and time horizons. Adaptations tailored to planning time and money in the short run and long run each show strong evidence of reliability and validity. We find that propensity to plan is moderately domain-specific. Scale measures and actual planning measures show that for time, people plan much more for the short run than the long run; for money, short- and long-run planning differ less. Time and money adaptations of our scale exhibit sharp differences in nomological correlates; short- run and long-run adaptations differ less. Domain-specific adaptations predict frequency of actual planning in their respective domains. A "very long-run" money adaptation predicts FICO credit scores; low planners thus face materially higher cost of credit.
Open Access
Commitment-Flexibility Trade-Off and Withdrawal Penalties
(Economic Research Initiatives at Duke (ERID), 2012-03-01) Ambrus, A; Egorov, G
Withdrawal penalties are common features of time deposit contracts offered by commercial banks, as well as individual retirement accounts and employer-sponsored plans. Moreover, there is a significant amount of early withdrawals from these accounts, despite the associated penalties, and empirical evidence shows that liquidity shocks of depositors are a major driving force of this. Using the consumption-savings model proposed by Amador, Werning and Angeletos in their 2006 Econometrica paper (henceforth AWA), in which individuals face the trade-off between flexibility and commitment, we show that withdrawal penalties can be part of the optimal contract, despite involving money-burning from an ex ante perspective. For the case of two states (which we interpret as “normal times” and a “negative liquidity shock”), we provide a full characterization of the optimal contract, and show that within the parameter region where the first best is unattainable, the likelihood that withdrawal penalties are part of the optimal contract is decreasing in the probability of a negative liquidity shock, increasing in the severity of the shock, and it is nonmonotonic in the magnitude of present bias. We also show that contracts with the same qualitative feature (withdrawal penalties for high types) arise in continuous state spaces, too. Our conclusions differ from AWA because the analysis in the latter implicitly assumes that the optimal contract is interior (the amount withdrawn from the savings account is strictly positive in each period in every state). We show that for any utility function consistent with their framework there is an open set of parameter values for which the optimal contract is a corner solution, inducing money burning in some states.