1. Why Do We Procrastinate?: An Evolutionary Perspective based on “Uncertainty and Hyperbolic Discounting” P. Dasgupta (Cambridge) E. Maskin (I.A.S.)

2. 2 Suppose in February, we confront choice between –painful 5-hour task on April 1 –painful 8-hour task on April 15 (tax deadline in U.S.) (last minute hitches in finding all the receipts, long lines at the post office, etc.) Most of us will choose April 1

3. 3 But as April 1 approaches, we are apt to postpone the task until April 15 after all - - we procrastinate Put differently, we discount the future pain of April 15 more heavily as April 1 approaches (the fact that task will take 8 hours on April 15 doesn’t matter so much as time grows short) To clarify: The more heavily we discount, the less weight we put on the future compared with the present

4. 4 Another example: A lot of people resolve early in the year to set aside money for Christmas But often they find themselves spending the money on intervening opportunities—summer vacations, back-to-school clothes Again, as the year progresses, they discount the future (buying Christmas presents) more heavily - - i.e., they become more impatient

5. 5 Many people realize they are vulnerable to this tendency save by putting money in “Christmas account” accounts pay no interest distinguishing feature is that accounts are illiquid –people can’t get their money out until November

6. 6 So, in both the tax and Christmas examples, people discount the future more and more heavily as time goes on (hyperbolic discounting) Why are economists interested in this phenomenon? –because it gets in the way of saving and other long-term planning

7. 7 We know that we should be saving for retirement –but taking the trouble to actually do so is something we often postpone –as a result, most people do not save enough

8. 8 great virtue of government social security plans: they force us to do what procrastination (hyperbolic discounting) prevents us from doing on our own this is best economic rationale for such social security schemes if we weren’t subject to hyperbolic discounting, wouldn’t need social security

9. 9 Interestingly, we’re not only species that discounts hyperbolically birds (more specifically, pigeons and starlings) do it too large experimental literature documenting this

10. 10 In typical experiment, bird is offered choice between –a big but distant reward (“Christmas”), say 10 seeds after 30-minute wait and –a small but more immediate reward (“summer vacation”), say 3 seeds after 10-minute wait bird makes choice by pecking corresponding key (need preparation) many birds opt for later reward but after say 8 minutes, switch to earlier option (have become more “impatient”)

11. 11 Notable additional feature: sometimes a third key is introduced –“disables” early-option key many birds that switch from late to early option eventually peck this key commits them to later option (just as savers commit to having money for Christmas by creating an illiquid bank account)

12. 12 Why do we (and birds) discount hyperbolically ? most likely, we’re acting on the basis of “urges” or “inclinations” (rather than rational calculation) this is even clearer for the bird subjects but these urges come from somewhere

13. 13 Hypothesis: urges are genetic, i.e., they are shaped by evolutionary forces With human behavior, always difficult to separate nature from nurture That’s why bird evidence so intriguing –birds’ behavior has a high genetic component –so, things we see them do were likely selected to enhance their survival

14. 14 Will argue that there is a simple evolutionary explanation –for why bird has urge to switch from late (bigger- payoff) option to early (smaller-payoff) option or –for why a person might feel inclined to put off doing his taxes from April 1 to April 15 as April 1 approaches That is, tendency of an individual to discount the future more as time passes (to discount hyperbolically) has survival value

15. 15 But first a simpler question: Why should we be inclined to discount the future at all? Two straightforward and conventional answers:

16. 16 1)The future is uncertain (a bird in the hand is worth two in the bush) a bird may opt for 1 seed now rather than 2 seeds in 5 minutes because the 2 seeds might not be there when 5 minutes elapse (perhaps just one will be left, or even none) 2)It is costly to wait Waiting entails using up energy (physiological cost) bird may go for 1 seed now because because burns up too many calories waiting for bigger reward Waiting entails passing up other prospects (opportunity cost) by hanging around the raspberry bush waiting for berries to ripen, blackbird may lose out on other goodies

17. 17 But in comparing 2 future prospects, why is it good idea to discount later prospect more and more relative to earlier prospect as time goes on (as hyperbolic discounting entails)?

18. 18 Answer: There is typically uncertainty about not only whether a future prospect will be realized, but when it will be realized. Imagine blackbird is waiting for fruit on a raspberry bush to ripen –may be pretty sure raspberries will ripen by tomorrow morning –but some chance they will ripen earlier (or later)

19. 19 Expected (average) values If I face an uncertain prospect in which 20% chance of $5 30% chance of $10 50% chance of –$6, expected (average) value =.2 × 5 +.3 × 10 +.5 × (–6) = 1 so, on average, this prospect will make me richer by $1 prospects with higher expected values are on average better than prospects with lower expected values

20. 20 Two prospects: raspberries and blackberries waiting cost: 1 calorie per hour (1)raspberry payoff: 4 calories, bird must wait up to 2 hours for berries to ripen (2)blackberry payoff: 5.2 calories, bird must wait up to 4 hours for ripening For either prospect, for each hour that goes by, 20% chance that berries will ripen then Average Net payoff from (1) = 4 –.2 × 1 –.8 × 2 = 2.2 Average Net payoff from (2) = 5.2 –.2 × (1 + 2 + 3) –.4 × 4 = 2.4 so best to choose blackberries initially Suppose 1 hour elapses and neither bush has ripened yet Av net payoff from (1) = 4 – 1 = 3 Av net payoff from (2) = 5.2 –.2 (1 + 2) –.6 × 3 = 2.8 so best to switch to raspberries after 1 hour

21. 21 Idea: bird compares raspberries and blackberries initially chooses blackberries, partly because of higher calories, partly because fruit might be ripe early after hour passes, chance of early realization is lower this is true of raspberries too, but reduced chance of early ripening doesn’t matter much because they will ripen in another hour anyway so bird will switch to raspberries basic principle is very general (established in theorem paper)

22. 22 Uncertainty about when berries will ripen means that bird should behave as though it discounts hyperbolically –originally, it is “patient” and chooses later, “bigger” option: blackberries –after some time, it becomes “impatient” and switches to the earlier, “smaller” option: raspberries Because urge to switch helps bird get more calories (and therefore improve its survival chances), we should expect urge to result from natural selection

23. 23 But I’m not quite done yet although have given evolutionary account of hyperbolic discounting, still haven’t explained Christmas accounts why pigeons peck the third key (which prevents them from later switching from the later 10-seed to the early 3-seed option) if switching is a good calorie-maximizing (survival-maximizing) strategy, why do people and pigeons take pains to commit themselves not to switch?

24. 24 There is straightforward answer urge to switch was “designed” to handle choices in which there is significant uncertainty about when payoffs will be realized but in the case of saving for Christmas, there is no such uncertainty- - Christmas is not going to arrive early one year similarly, in the pigeon experiments, the various options are usually programmed to arrive at fixed times.

25. 25 Thus the rationale for switching is lost in those scenarios This means urge to switch is not well adapted to the different (artificial?) circumstances But the poor pigeons and people are stuck with their urges

26. 26 So what can they do? can’t turn off the urges but after learning from experience that urges are ill-adapted, can take steps to stop themselves from acting on them this is where the commitment devices (Christmas accounts and third keys) come in - - they are solutions to “nonstandard” problem

27. 27 fact that people and pigeons are learning is important piece of evidence commitment devices are not used right away –people typically struggle unsuccessfully for years with trying to save before resorting to Christmas accounts –pigeons switch many times before start pecking the third key (which disables option to switch)

28. 28 This learning suggests that these scenarios fall outside the norm of “evolutionary” experience Also suggests a test of theory: –introduce uncertainty about when seeds are realized in pigeon experiments –now, switching makes sense again –so, pigeons should no longer commit themselves not to switch to the early option