Mar. 12 Investment vs Leisure good

Friday in Behavior Economics course…..

We are basically doing psychology here, right?
At least psychology for dummy!
(laughs~)

I think the few students from the psychology department would not agree.

======================

/*Math in economics is a disciplinary device.*/

====================

Internal commitment device.
Research observed that if a child shows the ability of internal commitment, they usually become more successful in their life.

In our daily life, there are two types of goods we can consume:
1. Leisure good
2. Investment good

Leisure goods are those that provide you instant joy but cost you some pain in the second (later) period. We depict this as: U1>0 & U2<0

Example of this good are: going to the casino, using your credit card, talking on the phone all day, eating chocolate…

In most cases, we under-estimate our consumption ability and consume too much of it.

Investment good on the other hand are those which make the present self suffer, but provide long run pleasure. We denote this as: U1<0 & U2>0.

Good of this kind are as such: reading the Economist, going to the gym, and studying in the library, participate in a reading club.

For these types of good, we over-estimate our ability to consume (we think we will study each issue of Economist every week), and therefore pre-commit ourselves too much, saying that we should subscribe for the Economist, and become a annual member of the gym.

Firms see our weakness and use the following pricing scheme (two part tariff):
Define T as a initial down payment (member fee), and P and the per use/consumption cost (entrance fee). For leisure goods, a low T and high P is set; while investment good usually have a high T and low P. With this pricing scheme, firms earn the most, while consumers do no.

Despite we use various commitment devices to motivate and to insure we invest in our future self, we tend to forget about our huge down payment at the beginning (subscribing the Economist) and forgot/ got lazy to read them each week after another. Leisure good on the other hand are like the time we have wasted our lives doing nothing or buying a pack of chips thinking we are just going to have one piece at a time. Yet, most of the time, a whole pack is immediately gone before we realize and cost us plenty of trouble in losing the extra fat carrying.


Recently, I have been consuming too much of leisure good, which makes me feeling frustrated even more and disgust my current condition more than ever (the U2<<<<<0) part of consequence.


So, this leads us to the most important question:
----> How do we commit ourselves to the most important thing in our current life?