The price of uncertainty in present-biased planning

DOI10.1007/978-3-319-71924-5_23MaRDI QIDQ4614080zbMATH OpenOpenAlexFDO

Authors Susanne Albers, Dennis Kraft

Publication date 30 January 2019

Published in Web and Internet Economics (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/1708.07715

zbMATH Keywords

approximation algorithmsbehavioral economicsheterogeneous agentsincentive designpenalty feesvariable present bias

Mathematics Subject Classification ID

Software, source code, etc. for problems pertaining to game theory, economics, and finance (91-04) Utility theory (91B16) Heterogeneous agent models (91B69)

Abstract: The tendency to overestimate immediate utility is a common cognitive bias. As a result people behave inconsistently over time and fail to reach long-term goals. Behavioral economics tries to help affected individuals by implementing external incentives. However, designing robust incentives is often difficult due to imperfect knowledge of the parameter $$ quantifying a person's present bias. Using the graphical model of Kleinberg and Oren, we approach this problem from an algorithmic perspective. Based on the assumption that the only information about $$ is its membership in some set $Bsubset(0,1]$, we distinguish between two models of uncertainty: one in which $$ is fixed and one in which it varies over time. As our main result we show that the conceptual loss of efficiency incurred by incentives in the form of penalty fees is at most $2$ in the former and $1+maxB/minB$ in the latter model. We also give asymptotically matching lower bounds and approximation algorithms.

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• Present-biased optimization
• Combinatorial auctions with endowment effect
• Planning on an empty stomach: on agents with projection bias
• Present bias in partially sophisticated and assisted agents
• Principal-agent problems with present-biased agents
• Present bias
• On the Value of Penalties in Time-Inconsistent Planning
• Work More Tomorrow: Resolving Present Bias in Project Management

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