Allcott, Lockwood, and Taubinsky (2019) on Soda Taxes

Hunt Allcott, Benjamin B. Lockwood, and Dmitry Taubinsky, “Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence.” Journal of Economic Perspectives 33(3): 202-227, Summer 2019.

• Some US cities, and many nations, tax beverages with added sugar; often such drinks do not receive the favorable tax treatment otherwise provided to groceries, too

• In the US, consumption of sweetened beverages falls with income, and the top 20% of consumers drink a lot of soda

• Associated health risks include weight gain, type 2 diabetes, and cardiovascular disease

• Fiscal externalities abound throughout the health care “system," so someone's unhealthy behavior is in part paid for by others. [Nonetheless, I am very wary of justifying policy on the basis of such fiscal externalities, in part because they seemingly justify any draconian measure. Your lack of exercise is costly to me! You must be coerced to exercise more and to eat in a more healthy way! Perhaps our willingness to provide subsidies for those in health crisis is predicated on the notion that we don't ask too many questions of how they got in such dire straits.] 

• Sugary drinks also present the potential for internalities, perhaps emanating from poor information or present bias or addiction or some other rationality shortfall

• The monetary incidence of a soda tax is likely to be regressive; do the internality benefits reverse the full incidence of such a tax? (That is, those who consume the most will pay the most tax, but (presumably) also receive the lion's share of benefits in the form of better health down the road from reduced soda consumption.)

• Soda tax revenues can be earmarked for programs benefiting people who pay the taxes, but if those programs are desirable, they should be funded anyway, and not have their funding dependent on a single dedicated revenue source. 

• Perhaps 1-to-2.1 cents per ounce is an “optimal” soda tax?

• Lessons? (1) Focus on the externalities and internalities (therefore…); (2) target those consumers who present the largest ex- and in- ternalities; (3) Implement the tax in terms of grams of added sugar; (4) Diet drinks and fruit juices are another story; (5) Be sophisticated about incidence; (6) Reduce avoidance through statewide (not municipal) taxes; and... (7) Reasonable soda taxes probably bring net social benefits.

• Here's a previous outline of an article on the sweetening of diets.

Fennell (2019), "Personalizing Precommitment"

Lee Anne Fennell, “Personalizing Precommitment.” University of Chicago Law Review 86(2): 433-458, March 2019.

• Achieving long-term goals such as losing weight or writing a book requires the cooperation of many temporal selves of the same individual -- and perhaps the indulgences of some Mr. Hydes will undermine Dr. Jekyll's best-laid schemes. Precommitment can help, and the law might have a role to play in making such precommitments more available.

• Fennell invokes the "scale mismatch" terminology of Drazen Prelec; scale mismatch is when the goal (such as losing weight) is achieved in aggregate terms but the steps (literally?) to achieve the goal are lots of small individual decisions.

• Rigid rules – exercise one hour every day – might work in overcoming these temporal internalities, but such rules might be excessive or so demanding that they are abandoned.

• Perhaps people can fashion their own, less rigid but more sustainable rules? Good choices of “partitions” and “menus” can aid the process. For instance, appropriate serving sizes and types of serving utensils and single-serve packaging: all of these nudges can contribute to achieving a weight-loss goal.

• Segmentation eases metering and monitoring. How much cake did I eat? It might be easier to know the answer when the cake is consumed in segmented units -- I had three cupcakes -- than when I just keep picking at some unsegmented blob o' cake.

• Writing a book might be made manageable by segmenting the task into chapters and sections. But…while smaller chunks are easier to complete, given scale mismatch, they also look less meaningful in terms of progress, and more capable of postponement.

• Instead of segmenting work time, what about segmenting time not spent working – like limiting breaks to ten minutes?

• Monetary issues often can be addressed with precommitments and partitions. Purchasing a home can be a sort of forced saving – but this commitment device can be undone by easily acquired home equity loans. Can programs be provided that allow people to opt into a "no home equity loans" condition? 

• People might try to earmark money for savings by having special accounts or even physical envelopes -- though the commitment can be undone if an emergency arises. In general, setting high savings targets with sub-partitions (so that prematurely opening one savings envelope does not mean that all the others are opened, too) looks like a pretty good strategy. Even precommitting some money to indulgences can aid the larger goal of saving money. Should bank savings accounts come with earmarked sub-accounts that are made salient in web-based representations, say?

• Online menus could be personalized, by removing some excessively tempting items at the consumer’s request. 

• Rigid rules such as “no dessert” prune the menu to two choices: comply or don’t comply: “the reason that they can be so effective – the extreme chunkiness of the choices they present – is also the reason why they often fail” 

• Rules change the effective payoffs: the good choice becomes more automatic, and the wrong choice bears a higher price. 

• Lapses can induce further failures. Ex ante, it often is best to believe that behavior is bundled, that a lapse today will mean a rapid downward spiral. (Fennell calls such notions "behavioral firewalls"; in this case, good behavior today prevents future bad behavior.) Ex post (after a lapse), however, it is best to believe that the lapse was anomalous, that it doesn’t fore-ordain future behavior. Now the firewall changes: future behavior must be sealed off from the lapse.

• As with money set aside for financial indulgences, limited, planned exceptions can be helpful – but perhaps not implementable, perhaps zero tolerance, rigid rules are needed. 

• Receiving an income tax refund can be a form of forced savings or a welcome source of wam – but private firms can offer products that undo the commitment element of tax refunds. The IRS, incidentally, provides a split-refund facility, to allow the funneling of part of a refund into savings.

Loewenstein and Chater (2017) Put Nudges in Perspective, and Thaler Responds

George Loewenstein and Nick Chater, “Putting Nudges in Perspective.” Behavioural Public Policy 1(1): 26-53, 2017

• Nudging is popular, but perhaps its unintended consequences are worrisome; perhaps, for instance, nudges have crowded out better policies.

• The standard nudge involves a response to a problem that itself is a result of a behavioral issue, a rationality shortfall. But there is no reason that the best type of policy response – whether traditional, behavioral, or a hybrid – should match the condition that gives rise to the problem. Some rationality shortfalls might best be handled with taxes or regulations, not nudges…

 • …though behavioral ideas can help package those taxes or regulations in ways that can maximize their impact.

• One important area of concern involves how to counter the nudging undertaken by profit-maximizing firms, often aimed at taking advantage of consumer rationality shortfalls.

• Many social problems can’t be explained by behavioral issues that should be roughly constant over time and in different areas. These problems perhaps require a structural response, not a nudge. The recent increase in obesity cannot really be due to an increase in present bias; nor will it be fixed by better placement of healthy products in stores.

• Don’t let nudges distract you from seeking more comprehensive solutions. Loewenstein and Chater go on to examine three policy areas from their "perspective."

• Smoking: externalities, internalities, and depredations by sellers all motivate policy responses. Those responses include high taxes, advertising and marketing controls, product placement controls, graphic warnings, public smoking bans – and the combination is effective.

• Obesity: internalities, budgetary externalities, and the behavior of those profit-motivated sellers provoke policy responses. The main response is of the “traditional economics” variety, information provision, and it is not very helpful for what is after all a structural problem, not a big change in behavioral biases or time discounting. Perhaps bans on non-linear pricing are called for?

• Retirement Savings: Internalities, and the behavior of firms like payday loan companies, exacerbate the extreme savings shortfalls that exist. Successful interventions have been behavioral, especially defaults and automatic escalation of savings. Tax breaks are not very helpful, but much more needs to be done.

• Consider big issues, such as inequality, climate change,and employment overhauls: all of these problems need traditional economic responses,and perhaps some hard paternalism – but there still are plenty of contributions that behavioral science can make.

Professor Thaler responds with “Much Ado About Nudging,” on the Behavioural Public Policy Blog, June 2, 2017

• No one really believes that nudges are a panacea. In Nudge, we just want to inform policy with behavioral insights. 

• Likewise, everyone agrees that present bias is not the sole cause of obesity. 

• Don’t undersell the cumulative impact of many small behavioral interventions, including when applied to big problems like climate change. “My own approach to thinking about such problems is to conduct what I call a ‘choice architecture audit’, the goal of which is to find the most critical decisions various actors have to make, as well as the potential levers (behavioral and economic) that policy makers can use to improve outcomes.” 

• There is much to be said for nudging (soft paternalism) over hard paternalism when it comes to dealing with internalities. Either type of policy will push some subset of people in an inappropriate direction: how hard do we want that push to be? 

• We know bureaucrats are biased and often mistaken: do we want them to be hard or soft paternalists?

Viscusi and Gayer (2015) on Reasons to Distrust Government Nudges

W. Kip Viscusi and Ted Gayer, “Behavioral Public Choice: The Behavioral Paradox of Government Policy.” Harvard Journal of Law & Public Policy 38(3): 973-1007, 2015 [pdf].

• Behavioral departures from full rationality are often used as justifications for government interventions in markets. But the resulting government policies can institutionalize, not rectify, the rationality shortfalls.

• Regulators themselves possess rationality shortfalls, and there are features of the environment in which regulators operate that push them away from pursuing first-best policies.

• If the median voter possesses biases, then a democratic government is likely to share those biases.

• Less-than-rational individuals tend to bear the costs of their errors themselves – not so with regulators. Further, individuals might have enhanced incentives (relative to bureaucrats) to acquire relevant information. Regulators, like all of us, can be overconfident in their abilities.

• Can we trust the claims that people are less-than-rational, or at least the universality of the claims? People are heterogeneous, and what looks like a mistake might reflect specific, reasonable preferences.

• Many consumer durables now have energy efficiency mandates, justified by internalities. But the energy-efficiency misjudgment is far from a proven problem. The claims of energy savings tend to be engineering-based, unavailable in practice, while individual circumstances can rationalize seemingly myopic choices.

• We could be more confident in an even-handed use of behavioral economics if a lot of pre-existing mandates were being replaced by non-coercive nudges. But instead, we see behavioral economics being used to tighten regulation, not to loosen it. Notice that the less-than-complete (narrow) self-interest that behavioralists often emphasize implies that even externalities might be internalized without government policy.

• The EPA instituted a fuel economy labelling requirement that seems intended to remedy all the problems that their later efficiency mandates also targets – don’t they trust their own labelling regulation?

• In dealing with health and safety risks, government does not seem to be more rational than individuals. In practice, worst-case scenarios are over-weighted in regulatory policy; EPA methodology leads to cascading of conservative estimates so that extremely low-likelihood problems can dominate policy. Further, the number of people exposed to a risk, which should be central in formulating policy, is ignored.

• Increases in risk are a sort of loss, and loss aversion kicks in – in the form of alarmist regulatory responses to ebola, terrorism, etc.

• The FDA fears errors of commission much more than errors of omission. [Nonetheless, the evidence base is weak – look how often risks are revealed only after approval; then there are off-label uses, which are quite legal, despite not having been tested in the usual sorts of controlled trials.]

• If organic veggies carry less risk than non-organic vegetables, but they cost more, it could still be better health-wise for people to eat more, non-organic veggies.

• For people to accept a small increase in risk often involves a payment some six times larger than they would pay for the same reduction in risk – a reflection of loss aversion. The “first, do no harm” principle leads to a similar effect in policy. It is often hard to identify victims of the FDA’s failure to approve a useful drug.

• Agencies can have tunnel vision, treating their issue in isolation. In OSHA, for example, regulators are not even allowed to look at the costs of fixing a hazard. One result: costs per life saved vary widely across domains, in ways that seem to be far from optimal.

Bhattacharya, Garber, and Goldhaber-Fiebert (2015) on Exercise Nudges

Jay Bhattacharya, Alan M. Garber, and Jeremy D. Goldhaber-Fiebert, “Nudges in Exercise Commitment Contracts: A Randomized Trial.” NBER Working Paper 21406, July 2015.

• The authors implement a natural field experiment: people who browse their way to stickK.com looking to sign a contract that requires them to exercise regularly are randomized into one of three conditions. 

• The three conditions differ based upon the default length of the exercise commitment contract; the default (which is easy to override) can be 8 weeks, 12 weeks, or 20 weeks. More than 8,000 people take part in the experiment (unbeknownst to them, it seems), though some of the analysis relates to approximately 3,000 subjects for whom a longer period of data is available. 

• A nudge towards longer contract durations succeeds; that is, a 20-week default setting leads to longer duration actual contracts than do the shorter default terms. More than one-in-five contractors choose to put up monetary stakes – they lose money if they fail to exercise to the terms of the contract – that average $23 per week. 

• Not only does the 20-week nudge result in longer duration contracts, it induces more weeks of exercise – though the average weeks of successful exercise are less than half of the specified durations. 

• About 6% of the sample enters into a second commitment contract after the expiration of their earlier contract. The data suggest that people would be much more likely to sign a second exercise commitment contract if they were placed into a long (more than 18 weeks) initial commitment contract, as if the longer duration helps cement an exercise habit. 

• Following the reporting of their empirical results, the authors develop a parallel theoretical model. The model offers a four-period version of a quasi-hyperbolic utility function; the four periods allow for a pre-contract period and, later, the option of signing a second contract. 

• The subjects are assumed to be present biased and sophisticated about their bias – after all, the subjects are interested in committing to exercise. Exercise in the model is a habit-forming good, but one involving current costs along with future benefits. Without commitment, present-biased people will choose to exercise too little, from the point of view of their own long-run (non-present-biased) preferences. 

• Small changes in the depreciation of exercise “capital” (which underpins the habit-forming nature of exercise) lead to large changes in optimal exercise choices. In contrast, even sizable changes in the degree of present bias have little impact on optimal exercise. 

• The authors offer a definition of a nudge that incorporates asymmetric or libertarian paternalism: a nudge in a given period t cannot decrease the person’s period t utility by very much. (But a nudge surely will decrease that utility, that is, it cannot make the period t person better off.) And though nudges must be small in this sense, they nevertheless can have a large effect on exercise choices, in particular, by helping to promote an exercise habit. A large nudge, however, can lead to so much present exercise that in future periods, exercise is eliminated, as the subject finds it optimal to rest on his or her exercise laurels. 

• Are sophisticated but present-biased people better off with a nudge? By definition, here, the person in the nudged period is not better off. Future selves can be helped or harmed, however – the overall welfare effects of nudges for a heterogeneous population are ambiguous.

O’Donoghue and Rabin (2015) on Present Bias

Ted O’Donoghue and Matthew Rabin, “Present Bias: Lessons Learned and To Be Learned.” American Economic Review 105(5): 273–279, 2015 [pdf].

• In extending the standard exponential discounting model to incorporate present bias, the β, δ functional form has proven to be “useful, tractable, and (importantly) disciplined [p. 273].” Further, the β, δ approach seems to correlate well with the psychological findings, in that most of the action in terms of changing discount rates over time concerns right now versus the future. [For more on the quasi-hyperbolic, β, δ approach, see this Behavioral Economics Outlines post.] 

• If β is less than 1, and hence the individual displays present bias, we still need to inquire as to whether the person comprehends that she is present biased. A person who fully understands her taste for instantaneous gratification is termed “sophisticated,” whereas someone who fails to understand her present bias – she repeatedly says, and believes, that she will quit smoking tomorrow – is said to be “naïve.” People who recognize that they are present biased but underestimate the extent of their bias are partially sophisticated or partially naïve. 

• Without uncertainty or liquidity constraints, choices among monetary streams should be made by maximizing present value at market interest rates: individual preferences and discount rates are irrelevant. In low-stakes experiments, people are unlikely to be liquidity constrained; therefore, those choices should not depend on discounting. For this reason, recent experiments exploring present bias try to use real effort flows, not monetary streams. 

• Pairs of decisions, such as those involving credit card borrowing along with those involving retirement savings, can inform the calibration of present bias. The idea is that credit card purchases are influenced by present bias, whereas retirement decisions reflect long-run (β=1) preferences. 

• Welfare assessments are possible despite the non-unitary (over time) actors that present bias reflects; long run (that is, β=1) preferences have much to recommend them as the welfare criterion [example here]. 

• Don’t rush to “explain” heterogeneous behavior by different degrees of present bias. Habit persistence or tastes for tobacco probably explain more variance in smoking than does different degrees of present bias, for instance.

Bhargava and Loewenstein (2015) Want to Go Beyond Nudging

Saurabh Bhargava and George Loewenstein, “Behavioral Economics and Public Policy 102: Beyond Nudging.” American Economic Review 105(5): 396-401, 2015.

• The early behavioral economics-influenced policy proposals were aimed at internalities, and at nudging decisions quite proximate to the perceived problem. 

• The next stage, Bhargava and Loewenstein argue, should be to influence the design of policies that are more fundamental, but perhaps less proximate, to perceived problems. This approach need not be particularly controversial, given that the targeted problems often implicate externalities or other market failures. 

• Successful nudges have included easing the way to save more for retirement, along with improving the disclosure of information so that people receive useful information in a manner that is easy to understand and respond to. 

• Proposed principle #1: not only should choice environments be simplified, the objects of choice should be simplified. Financial products, for instance, could be required to be simple and to be presented in a standardized form. 

• Proposed principle #2: policy should look to counter nudges by the private sector that are detrimental to consumers. 

• Proposed principle # 3: traditional policy instruments, such as taxes, should be modified in a manner informed by behavioral considerations (framing, salience, inattention, etc.) to maximize the policies’ impacts. 

• Examples that the authors discuss include health insurance (lots of room for simplification and standardization); privacy and disclosure (again, simplification and standardization, along with controls on misleading disclosures); and climate change (contending against the many psychological dispositions that make it hard to recognize or respond to this global public bad).

Loewenstein, Sunstein, and Golman (2014) on Disclosure

George Loewenstein, Cass R. Sunstein, and Russell Golman, “Disclosure: Psychology Changes Everything.” Annual Review of Economics 6: 391–419, 2014 (pdf).

• A good deal of information is disclosed through government mandate, and much of this information would not be disclosed in the absence of the mandate. The information would not be disclosed perhaps because it would not benefit sellers, or because information has a public good aspect that lowers the incentive for any single private entity to produce and disseminate the information. 

• Mandated disclosures involve some subtle costs, such as the time they take for consumers to read them, the subsequent loss of attention to other pieces of information, and even the emotional costs associated with graphic warnings, for instance. 

• Mandated disclosures tend to occur when there are significant gaps in the information known to sellers and that known to buyers, and when the informational disadvantage threatens the interests of consumers. Disclosure also can be used to help consumers overcome their own departures from rational decision making: perhaps “behavioral market failures” provide a rationale for policies to limit internalities. 

• Some information – such as a physician’s assertion that a certain treatment is needed – is not verifiable, and hence problems connected with this information cannot be solved simply through disclosure. But physicians might be required to disclose their interests (such as receiving royalties from the recommended treatment) if those interests are not fully aligned with patient interests. 

• Disclosure of conflicting incentives does not fix every problem. The disclosing agent might view the disclosure as allowing for carte blanche, for any sort of self-interested advice. The recipient (principal) might feel compelled to follow the advice, to avoid the inference that the advice giver is viewed as untrustworthy. 

• The technology of disclosure – who makes it, when, and what effort is made to render it noticeable – helps to determine its impact. 

• Sellers have little reason to put effort into those dimensions of a good that potential consumers do not pay attention to. A producer of a less deadly cigarette might not want to disclose its relative safety, because to do so might make the fatal consequences of smoking more salient. 

• Warning labels don’t seem to accomplish much; more generally, see Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure, Princeton U. P., 2014. 

• The absence of information should best be met, perhaps, by assuming the worst, as otherwise the information would have been provided. But people often do not draw this inference, even when it is rational to do so. This presents a potential rationale for mandating disclosure. 

• Sometimes we want to be ignorant, sometimes information can lower our utility – a tendency that motivated the May, 2015 on-air radio killing of a young rabbit in Denmark. 

• The tell-tale heart effect: mandated disclosure might cause producers to up their game, even if no consumers pay attention. Revelation of calorie counts might lead to lower calorie offerings, even if consumers do not respond to the calorie information. Maybe producers suffer from a spotlight effect, a belief that people are observing their disclosures more closely than really is the case. 

• Simplified information, like restaurant health grades, is often more valuable to consumers than is more finely grained information. 

• Comparative information – how does my energy use stack up against my neighbors? – might be more influential on energy usage than other types of usage disclosures. But the potential for perverse outcomes exists, too. 

• Personal policies for information disclosure or non-disclosure on social media, for example, do not seem to be fully rational.

Jayson Lusk Takes on Libertarian Paternalism

Jayson L. Lusk, “Are You Smart Enough to Know What to Eat? A Critique of Behavioural Economics as Justification for Regulation.” European Review of Agricultural Economics 3: 355-373, 2014.

• People make some 200 food-related decisions per day! 

• Food policy activists presume that people should be eating differently than they do. 

• Lusk argues that behavioral economics-inspired policies are best when they are applied to rules that are aimed at externalities, not internalities. 

• Behavioral economics is sort of an intellectual fad, boosted by the interest of journals in novelty. At the same time that behavioral economics articles started appearing claiming that humans are not rational, other journals were publishing articles claiming that non-human animals are rational. 

• Some behavioral economists jump quite quickly from small-scale experiments on undergraduates to major claims about appropriate policy. Laboratory conditions are not the real world, and lab experiments reveal how people operate in the lab. 

• People need practice to make good decisions, so the government should not remove opportunities for people to choose. People self-regulate, self-commit, and even employ stickk.com. 

• Behavioral economics incentivizes the abdication of personal responsibility and normalizes abnormality. Markets, alternatively, anticipate our changing preferences. 

• If we abandon traditional “welfare” analysis based on consumer surplus, all we have to go on are the prejudices of researchers. 

• Is there really any evidence that those people who are subject to all of these behavioral biases actually do worse in life than others not similarly afflicted?

Adam Oliver on “Nudging, Shoving, and Budging”

Adam Oliver, “Nudging, Shoving, and Budging: Behavioural Economic-Informed Policy.” Public Administration, 2015; doi: 10.1111/padm.12165.

• There is no accepted definition of libertarian paternalism or nudges. As a result, many policies are described to be behavioral despite having little claim to that moniker. You should worry about being pro-nudge, because the nudgers might go way beyond what you think you are signing up for. 

• Oliver claims nudges should present “no” burden on the rationals while attempting to correct an internality. 

• Loss aversion is not something you choose, but something you are, like a White Sox fan [Okay, the White Sox are not actually mentioned in the article.]

• Libertarian paternalism concerns internalities, respects liberty, and employs behavioral means. The British Behavioural Insights Team goes beyond nudging: sometimes it addresses externalities, as with organ donation. Having teenagers mentor toddlers to reduce teen pregnancy is not an obvious behavioural policy, nor is the provision of information about the drinking habits of one’s peers. 

• Straight out paternalism, without the libertarian adjective, is a “shove”; smoking bans are shoves. 

• A “budge” is a behaviorally informed regulatory intervention, designed to counter the misleading nonsense thrown up by profit-seeking corporations, like the payments made by candy makers to grocery stores for check-out line product placement. 

• Maybe it is the opportunity to choose, and not the utility derived from the choices, that is the real measure of welfare.

Camerer, et al. (2003) on Asymmetric Paternalism

Colin Camerer, Samuel Issacharoff, George Loewenstein, Ted O'Donoghue, and Matthew Rabin, “Regulation for Conservatives: Behavioral Economics and the Case for ‘Asymmetric Paternalism’.” University of Pennsylvania Law Review 151(3): 1211-1254, 2003.

• An asymmetric paternalistic regulation creates large gains for the less-than-rationals, while imposing little upon rationals. 

• Are there predictable circumstances in which people tend to be less than rational? 

• Asymmetric paternalism as a method for correcting internalities. The tradeoff is meant to assure that the interventions do not impose high costs on rationals. 

• It cannot be taken as given that people’s choices maximize their well-being. It’s an empirical issue, of course. 

• Many current regulations are asymmetrically paternalistic. 

• Defaults have to take into account what would be the most common best choice, as well as the possibility that the costs of error are asymmetric. 

• Cooling-off periods allow bad decisions to be reversed, but generally lower the value of the decision when it is rational. If sellers bear costs when decisions are reversed, they might want to ensure rational deliberation ex ante. Should consumers be allowed to waive cooling-off periods? 

• Constitutions implement the equivalent of cooling-off periods. 

• Are there private incentives to provide paternalistic interventions? Maybe the reason such interventions are needed is the reason they will not be demanded.

O’Donoghue and Rabin (2003) on Paternalism and Sin Taxes

Ted O’Donoghue and Matthew Rabin, “Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes." American Economic Review 93(2): 186-191, May 2003.

• “Economists will and should be ignored if we continue to insist that it is axiomatic that constantly trading stocks or accumulating consumer debt or becoming a heroin addict must be optimal for the people doing these things merely because they have chosen to do it [page 186].” 

• In the quasi-hyperbolic utility function, Beta < 1 implies a time-inconsistent preference for immediate gratification. In the welfare (efficiency) analysis, this preference for immediate gratification is treated as an error. That is, society sides with the long-run Dr. Jekyll, not the impatient short-run Mr. Hyde. 

• In the model, potato chips have present benefits but future costs. The quasi-hyperbolic decision maker, or at least the Mr. Hyde component of that decision maker, undervalues those future costs. 

• What is the most efficient way for the government to raise (a given amount of) revenue through taxes on the two goods, carrots and potato chips? If there were no present bias, both goods should be taxed equally. But if some consumers display present bias, efficiency suggests taxing the tempting good, potato chips, at significantly higher rates. 

• High taxes on potato chips do not harm fully “rational” consumers much, but help present-biased people significantly by internalizing the “internality.” 

• Offering commitment options to sophisticated present-biased people could help them, with little or no cost to those who are not biased. (A sophisticated present-biased person is someone who understands that she is present biased, and hence might be willing to pre-commit in such a way as to restrain her future choices.)

• More generally, policy might want to take into account the possibility of less-than-rational behavior. Some policies that might be valuable include mandatory cooling-off periods, required information disclosure, and careful selection of default options.