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Overestimating Self-Control: Evidence from the Health Club Industry

Ulrike Malmendier () and Stefano Della Vigna
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Stefano Della Vigna: U of California, Berkeley

Authors registered in the RePEc Author Service: Stefano DellaVigna ()

Research Papers from Stanford University, Graduate School of Business

Abstract: 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 diffcult to reconcile with the standard assumption of time-consistent preferences and rational expectations. A model of time-inconsistent agents with overconfidence about future time inconsistency explains the findings. The agents overestimate the future attendance and delay contract cancellation whenever renewal is automatic.

Date: 2002-10
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http://gsbapps.stanford.edu/researchpapers/library/RP1880.pdf

Related works:
Working Paper: Overestimating Self_Control: Evidence from the Health Club Industry (2004) Downloads
Working Paper: Overestimating Self-Control: Evidence from the Health Club Industry (2003) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:1880

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