Overcoming Present Bias: Government Policies for Boris’s Helmet Decision

Introduction

Present bias, a common psychological trait, often leads individuals to make suboptimal decisions by prioritizing immediate benefits over future consequences. In this scenario, we delve into the case of Boris, a motorcyclist who faces a daily decision to wear a helmet while crossing the Bay Bridge from Oakland to San Francisco. His choices have life-altering implications, as not wearing a helmet poses a risk of severe disability in the event of a crash. To address Boris’s present bias and promote safer choices, the government considers implementing incentive payment policies. This essay explores the optimal design of these policies, their impact on Boris’s decisions, and how they mitigate the internality caused by present bias.

Present Bias and Its Consequences

Present bias is a cognitive bias where individuals place disproportionate weight on immediate rewards while undervaluing future costs and benefits. In Boris’s case, this bias manifests as a tendency to prioritize the immediate daily benefit (b) of not wearing a helmet over the potential long-term cost (c) of disability in the event of a crash.

 Computing the Marginal Internality

The marginal internality quantifies the distortion in Boris’s decision-making due to present bias. It is the difference between his evaluation of immediate benefits and future costs. Present bias leads Boris to make suboptimal choices by underestimating the long-term consequences of not wearing a helmet and overvaluing the immediate pleasure derived from not doing so.

 What the Marginal Internality Represents

The marginal internality signifies the extent to which present bias skews Boris’s choices away from rational decision-making, considering the long-term implications of his actions. It is a measure of the bias’s impact on his decisions and highlights the need for policy interventions to counteract its effects.

Independence of Marginal Internality from Sophistication

Importantly, the marginal internality does not depend on Boris’s sophistication or knowledge. Present bias affects individuals across the spectrum of sophistication, making it a universal challenge that requires policy solutions.

Government Intervention to Overcome Present Bias

To help Boris overcome his present bias, the government proposes incentive payment policies. The effectiveness of these policies depends on whether the payments are immediate or delayed.

 Immediate Payments

If the government sends an incentive payment immediately each time Boris wears a helmet, the optimal payment should equal the marginal internality. This ensures that the immediate benefit of wearing a helmet (receiving the payment) outweighs the immediate benefit of not doing so, aligning Boris’s incentives with his long-term well-being.

The immediate payment overcomes the internality by making helmet-wearing more attractive in the present, combating Boris’s bias towards immediate rewards.

 Delayed Payments

Alternatively, if the government chooses to send payments one week in the future, the optimal payment must be larger than in the immediate case. This compensates for the extra time Boris spends making suboptimal choices due to his present bias.

The delayed payment still aligns Boris’s incentives with his long-term interests but acknowledges the continued influence of present bias during the waiting period. It requires a larger incentive to counteract the bias’s impact over the extended timeframe.

Conclusion

Boris’s daily helmet decision underscores the challenges presented by present bias in decision-making. Government intervention through incentive payments can help align Boris’s choices with his long-term well-being. Whether immediate or delayed, the optimal payment is designed to overcome the internality caused by present bias by making helmet-wearing more appealing in light of immediate rewards. These policies aim to promote rational decision-making while acknowledging the persistent influence of present bias.