Present-bias vs future-bias

Question

There is a huge literature in economics that studies time-inconsistencies in decision-making and that consistently finds that individuals make present-biased choices in a variety of contexts: we do not save enough for retirement, we procrastinate at work, we invest too little in our human capital, we drink and eat too much, we exercise too rarely, etc. It is widely accepted in our profession that human beings are distracted away from their long-term goals by their short-term impulses.

At the same time, a major theme in philosophy and literature (that goes back to Greek philosophy) is our inability to enjoy the present moment. According to this view, we are constantly dreaming of future imaginary pleasures and unable to satisfy ourselves with our present situation. An archetypal example is someone who always sacrifices the present for a mid-term goal (graduating, earning money, buying a house, getting tenured, ...), who always believes that she will enjoy life once the goal is achieved but who always finds a next step - and who realizes that too late. In the economics terminology, this person's most important decisions (work-life balance for instance) are actually future-biased.

I am aware that both phenomena are difficult to compare since the first one is extensively documented quantitatively whereas the second one is more speculative. But it strikes me that our view of intertemporal trade-offs is so dramatically different from what philosophers and psychologists think.

Is there any attempt in economics to reconcile both views? For instance, are you aware of a study that finds that people are future biased? Any reference or thought about this topic would be greatly appreciated. Thanks!

Answer 1

The tradeoff between work and leisure has been extensively studied. I would start with the wikipedia entries on labor supply:

https://en.wikipedia.org/wiki/Labour_supply https://en.wikipedia.org/wiki/Labour_economics#Neoclassical_microeconomic_model_.E2.80.94_Supply

If you are looking for more complex articles, Heckman in particular studies this, but it is econometrically heavy for undergraduates.

Note that there are two different effects you are asking about. First, you are looking for an economic explanation or model of why people find themselves regretting the amount of work they are doing after the fact. Depending on how you define regret, this can be modeled by allowing the agents to be surprised by their own mortality or other statuses. They will, after the fact, wish they had not valued the money so highly!

Secondly, you are looking for agents who explicitly value money tomorrow more than today. Awkwardly, the literal interpretation of this will not get the behavior you are looking for. If agents actually valued having money tomorrow more than today, they would never spend money and only save it! But, it is perfectly possible that agents value the money in the future too much, just not more than today. If this still describes what you are looking for, you should take a look at inter-temporal choice, particularly hyperbolic discounting.

https://en.wikipedia.org/wiki/Intertemporal_choice

To help exemplify this second point, let us consider the case of normal discounting rates $\beta$, where each period is worth a fraction of the prior period, say $\beta=1/2$ the value. The value from now to forever is:

$=1*0.5^0+1*0.5^1+1*0.5^2+....$

$=1/(1-0.5)=2$ by infinitely repeated fractions.

But what if $\beta$ is greater than 1? Say $\beta=1.1$?

$=1*1.1^0+1*1.1^1+1*1.1^2+...1*1.1^{999}+...$ diverges to $\infty$ by sum of infinitely repeated values, a sign of problems to come.