Nber Working Paper Series Overestimating Self-control: Evidence from the Health Club Industry

Experimental evidence suggests that people make time-inconsistent choices and display overconfidence about positive personal attributes. Do these features affect consumer behavior in the market? To address this question we use a new panel data set from three US health clubs with information on the contract choices and the day-to-day attendance decisions of 7,978 health club members over three years. Members who choose a contract with a flat monthly fee of over $70 attend on average 4.8 times per month. They pay a price per expected visit of more than $17, even though a $10-per-visit fee is also available. On average, these users forgo savings of $700 during their membership. We review many aspects of the consumer behavior, including the interval between last attendance and contract termination, the survival probability, and the correlation between different consumption choices. The empirical results are difficult to reconcile with the standard assumption of time-consistent preferences and rational expectations. A model of time-inconsistent agents with overconfidence about future patience explains the findings. The agents overestimate the future attendance and delay contract cancellation whenever renewal is automatic. Salesman pressure and overstimation of future efficiency are the leading alternative explanations. Stefano DellaVigna University of California, Berkeley Department of Economics 549 Evans Hall, #3880 Berkeley, CA 94720-3880 [email protected] Ulrike Malmendier Graduate School of Business 518 Memorial Way Stanford University Stanford, CA 94305-5015 and NBER [email protected] fs “Saturday 31 December. New Year’s Resolutions. I WILL [...] go to the gym three times a week not merely to buy sandwich.” (Fielding, 1999. Bridget Jones’ Diary: A Novel) A few months later: “Monday 28 April. [...] Gym visits 0, no. of gym visits so far this year 1, cost of gym membership per year $370; cost of single gym visit $123 (v. bad economy).” (Fielding, 2001. Bridget Jones: The Edge of Reason)