The Economics of Immediate Gratification

People have self-control problems: We pursue immediate gratification in a way that we ourselves do not appreciate in the long run. Only recently have economists begun to focus on the behavioral and welfare implications of such time-inconsistent preferences. In this paper, we outline a simple formal model of self-control problems, apply this model to some specific economic applications, and discuss some general lessons and open questions in the economic analysis of immediate gratification. We argue that the economic implications of self-control problems depend on the timing of the rewards and costs of an activity, as well as a person's awareness of future self-control problems. We identify situations where knowing about self-control problems can help a person and situations where it can hurt her, and also identify situations where even mild self-control problems can severely damage a person. In the process, we describe some specific implications of self-control problems for addiction, incentive theory, and consumer choice and marketing. Acknowledgments: O'Donoghue thanks the Alfred P. Sloan Foundation and Rabin thanks the Alfred P. Sloan and Russell Sage Foundations for financial support. Some of the research for this project was completed when both authors were visiting the Math Center at Northwestern University. We are extremely grateful for their hospitality, intellectual feedback, and financial support. We thank Erik Eyster for valuable research assistance.