Intertemporal planning with subjective uncertainty: anticipating your lazy, disorganized self

Abstract

Abstract We investigate intertemporal planning problems as a way of gaining understanding of the characteristics of individual decision-makers and the choice options presented to them. A frequent simplifying assumption that is made in studies of this sort is that choice of options that yield lower monetary payments than other available options is suboptimal, but consideration of subjective uncertainty in fulfilling requirements to obtain future payments easily disposes of this notion. For example, if one chooses an option in which one pays zero interest for a year on a purchase but then fails to pay the item off before high interest charges kick in, this would be considered suboptimal, compared with paying the item off up front, or in some other fashion. The important point is that what makes an action optimal or suboptimal is often contingent on information that is essentially unobservable, specifically, the probability that one will fail to pay the item off in time. In the experiment, we make inferences about subjective uncertainty based on the choices one makes.