Economics 10a Lecture Notes - Lecture 7: Procrastination, Arbitrage, Bounded Rationality
21 Mar 2016
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Eligible for retirement plan at work (e. g. 401k plan) End up with additional in employer matching funds. Withdraw contribution without penalty when you need it. Half of people don"t take advantage of this: 401k enrollment and defaults. Opt-in enrollment default is non-enrollment (40% participation) Active decision enrollment there is no default (one must choose) (65% participation) Automatic enrollment default is enrollment (90% participation) Three systems same opportunities available, same economic incentives, but different participation rates! Events occurring in this hour gets full weight. Discount function reflects dynamic inconsistency: preferences held at date t do not agree with preferences held at date t+1: procrastination, example. Exercise has a cost of 6 and generates delayed benefits of value 8. Exercise today: -6 + (1/2)8 = -2. Plan today to exercise tomorrow: 0 + (1/2)(-6+8) = 1. Agent would like to make plans today to exercise tomorrow. Average cost of gym membership: per month.
