| In this thesis we use field data to study consumer behavior in a market setting. Chapter 1 analyzes the optimal contract design of profit-maximizing firms if consumers have time-inconsistent preferences and are partially naive about it. Firms deviate from marginal cost pricing to provide a commitment device and to respond to consumer naivete about future consumption behavior. Firms also charge higher prices and additional fees after contract renewal and make contract cancellation costly to respond to delay in contract cancellation. Empirical evidence from the credit card and health club industries suggests that time inconsistency and naiveté are widespread and persistent among consumers.; Chapter 2 provides an empirical analysis of the market interaction between firms and time-inconsistent consumers. We use a new panel data set from three US health clubs with information on the contract choices and daily attendance of 7,978 members over three years. Members who choose a contract with a flat monthly fee of over {dollar}70 pay more than {dollar}17 per expected visit, even though a {dollar}10-per-visit fee is also available. On average, users forgo savings of {dollar}700 during their membership. These results are hard to reconcile with a standard model of time-consistent agents. A model of partially naive hyperbolic agents explains the empirical findings. The agents overestimate future attendance and delay contract cancellation whenever renewal is automatic.; Chapter 3 explores the impact of impatience and time inconsistency on job search. More impatient workers search less intensively and set a lower reservation wage. The effect on the exit rate from unemployment is unclear. We show that, if agents have exponential time preferences, the reservation wage effect dominates for sufficiently patient individuals, so increases in impatience lead to higher exit rates. The opposite is true for agents with hyperbolic time preferences: more impatient workers search less and exit unemployment later. Using two large longitudinal data sets, we find that various measures of impatience are negatively correlated with search effort and the exit rate from unemployment, and are orthogonal to reservation wages. Overall, impatience has a large effect on job search outcomes in the direction predicted by the hyperbolic discounting model. |
