It’s Haley’s 21st birthday. She and Claire have decided to get coordinating tattoos. Claire got hers first and now Haley is having a change of heart. In this scene, we see time inconsistency and imperfect information. Haley is concerned that her preferences will change over time so she decides against getting the tattoo. Meanwhile, Claire already regrets her tattoo because Haley won’t be getting one – but it’s too late for Claire. Tattoos do not have a return policy! If Claire had known that Haley would change her mind, she would not have gotten a tattoo (imperfect information). This clip can also be used to compare and contrast two types of games in game theory – sequential games and simultaneous games. If you decide to get a tattoo with a friend but only because you’re doing it with a friend, make sure you get them simultaneously!
See more: behavioral, game theory, imperfect competition, intrinsic rewards, preferences, sequential moves, tastes and preferences, time inconsistency
Haley, Phil and Luke are participating in a psychology study. Luke has convinced Phil that they should push the big red button that says “DO NOT PUSH” but Haley stops them. She says one in a million college drop outs go on to become Steve Jobs. The other 99 thousand don’t (her math is a little off). She recently dropped out of college and is having a crisis. This demonstrates several economic concepts including the importance of human capital and time inconsistency. Human capital comes from going to college but Phil reminds her that there are other sources of human capital. Time inconsistency occurs when you regret a decision in the past.
See more: behavioral, counterfactual, education, entrepreneurism, human capital, sunk cost, time inconsistency
Luke was supposed to keep a journal all summer, but when school starts again in the Fall, he realizes he only did one day. At the start of the summer, Luke’s focus on the present imposed large negative externalities on him when it’s time to turn in the work later in the summer. People who highly value present consumption are said to have high discount rates because they don’t care about future outcomes as much. This hyperbolic discounting can result in some inconsistencies when Luke looks back and realizes how much trouble he’s about to be in.
See more: discounting, irrationality, negative externalities, present oriented, procrastination, time inconsistency