Excessive consumption and present bias

Abstract

Inadequate saving for retirement and excessive consumption of sin goods have both been attributed to present bias. However, demonstrations that present bias does produce these effects have typically been confined to special cases. Previous research has focused on specific forms of discounting (such as quasi-hyperbolic) and on infinite planning horizons. Our paper investigates the implications of general present bias for consumption rules in a setting with an arbitrary number of periods. We show that equilibrium rules need not always prescribe higher consumption than precommitment decision rules do for the same stock. However, there are still social gains to discouraging consumption, and so rationales for commitment devices and paternalist interventions do generalize.