Wednesday, March 12, 2008

Hamermesh's Economic Thought for the Day

March 6, 2008—Lecturing on divorce today, I was reminded of the refrain in Clay Walker’s song “Then What”: “Then what, what you gonna do, when the new wears off and the old shines through, and it ain’t really love and it ain’t really lust, and you ain’t anybody anyone’s gonna trust. … when you can’t turn back for the bridges you burn….” in talking of a man about to engage in an extramarital affair. The guy in the song is willing to throw over his marriage, even though he may know that in the future the affair will come to nothing and he will lose his family. He values the present pleasure much, much more than he worries about the future pain. It’s not just that he has a high discount rate; he values pleasure now much more than he is bothered by pain next year, even though, if he were asked about an affair in three years compared to the pain it would cause him the following year, he would choose not to have an affair. We economists call this strange valuation of present and future hyperbolic discounting.—people overemphasize current pleasure and pain in comparing actions at different points in time.

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