Optimal time-inconsistent beliefs: Misplanning, procrastination, and commitment

Markus K. Brunnermeier, Filippos Papakonstantinou, Jonathan A. Parker

Research output: Contribution to journalArticle

3 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1318-1340
Number of pages23
JournalManagement Science
Volume63
Issue number5
DOIs
StatePublished - May 2017

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research

Keywords

  • Optimal beliefs
  • Optimism
  • Planning fallacy
  • Preference for commitment
  • Procrastination
  • Time-inconsistent beliefs
  • Time-inconsistent preferences

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