Optimal Time-Inconsistent Beliefs: Misplanning, Procrastination, and Commitment
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Optimal time.pdf
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Author(s)
Brunnermeier, Markus K.
Papakonstantinou, Filippos
Parker, Jonathan A.
Date Issued
April 2016
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Brunnermeier, Markus K.; Papakonstantinou, Filippos and Parker, Jonathan A. “Optimal Time-Inconsistent Beliefs: Misplanning, Procrastination, and Commitment.” Management Science (April 2016). © 2016 Institute for Operations Research and the Management Sciences (INFORMS)
Version
Final published version
Abstract
We develop a structural theory of beliefs and behavior that relaxes the assumption of time consistency in beliefs. Our theory is based on the trade-off between optimism, which raises anticipatory utility, and objectivity, which promotes efficient actions. We present it in the context of allocating work on a project over time, develop testable implications to contrast it with models assuming time-inconsistent preferences, and compare its predictions to existing evidence on behavior and beliefs. Our predictions are that (i) optimal beliefs are optimistic and time inconsistent; (ii) people optimally exhibit the planning fallacy; (iii) incentives for rapid task completion make beliefs more optimistic and worsen work smoothing, whereas incentives for accurate duration prediction make beliefs less optimistic and improve work smoothing; (iv) without a commitment device, beliefs become less optimistic over time; and (v) in the presence of a commitment device, beliefs may become more optimistic over time, and people optimally exhibit preference for commitment.
MIT Department
Sloan School of Management
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1287/mnsc.2015.2360
