@article{10707, author = {Markus K. Brunnermeier and Filippos Papakonstantinou and Jonathan A. Parker}, title = {Optimal Time-Inconsistent Beliefs: Misplanning, Procrastination, and Commitment}, abstract = {
We develop a structural theory of beliefs and behavior,~that relaxes the assumption of time-consistency in beliefs.~Our theory is based on the trade-off between optimism, which raises~anticipatory utility, and objectivity, which promotes efficient actions.~We present it in the context of allocating work on a project over~time, develop testable implications to contrast it with models assuming~time-inconsistent preferences, and compare its predictions to existing~evidence on behavior and beliefs. Our predictions are: (i) optimal~beliefs are optimistic and time-inconsistent; (ii) people optimally~exhibit the planning fallacy; (iii) incentives for rapid task completion~make beliefs more optimistic and worsen work smoothing, while incentives~for accurate duration prediction make beliefs less optimistic and~improve work smoothing; (iv) without a commitment device, beliefs~become less optimistic over time; (v) in the presence of a commitment~device, beliefs may become more optimistic over time, and people optimally~exhibit preference for commitment.
}, year = {2017}, journal = {Management Science}, volume = {63}, pages = {1318-1314}, url = {http://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.2360}, language = {eng}, }