Overestimating Self-Control: Evidence from the Health Club Industry∗

Experimental evidence suggests that people make time-inconsistent choices and display overconÞdence about positive personal attributes. Do these features affect consumer behavior in the market? To address this question we use a new panel data set from three US health clubs with information on the contract choices and the day-to-day attendance decisions of 7,978 health club members over three years. Members who choose a contract with a ßat monthly fee of over $70 attend on average 4.8 times per month. They pay a price per expected visit of more than $17, even though a $10-per-visit fee is also available. On average, these users forgo savings of $700 during their membership. We review many aspects of the consumer behavior, including the interval between last attendance and contract termination, the survival probability, and the correlation between different consumption choices. The empirical results are difficult to reconcile with the standard assumption of time-consistent preferences and rational expectations. A model of time-inconsistent agents with overconÞdence about future time inconsistency explains the Þndings. The agents overestimate the future attendance and delay contract cancellation whenever renewal is automatic. ∗An earlier version of this paper was distributed under the title “Self-Control in the Market: Evidence from the Health Club Industry.” We are particularly grateful to Edward Glaeser, Lawrence Katz, and David Laibson for their invaluable support and comments. We thank Philippe Aghion, Marios Angeletos, George Baker, Rachel Croson, Rajeev Dehejia, Oliver Hart, Caroline Hoxby, Ariel Pakes, Daniele Paserman, Andrei Shleifer, Antonio Rangel, Jeremy Tobacman, Klaus Wertenbroch, Justin Wolfers, and the participants of seminars in the Economics Departments at CREST (Paris), Dartmouth College, Harvard, Michigan (Ann Arbor), Northwestern, NYU, UC Berkeley, UCLA, at the Harvard Business School (NOM), Kellogg (M&S), Haas (EAP), at the Ente Einaudi (Roma), at the SITE 2001 and 2002 (Stanford University), and at the Eastern Economic Association 2002 for their comments. We thank Bryan S. Graham for providing Mathematica code and Tobias Adrian, Augustin Landier, and Sendhil Mullainathan for inspiring conversations at the beginning of this project. Tricia Glynn, Camelia Kuhnen, Scott McLinn, Boris Nenchev, and Nikita Piankov provided excellent research assistance. For Þnancial support, DellaVigna thanks Bank of Italy and Harvard University, Malmendier thanks Harvard University and the DAAD. “Saturday 31 December. New Year’s Resolutions. I WILL [...] go to the gym three times a week not merely to buy sandwich.” (Fielding, 1999. Bridget Jones’ Diary: A Novel) A few months later: “Monday 28 April. [...] Gym visits 0, no. of gym visits so far this year 1, cost of gym membership per year $370; cost of single gym visit $123 (v. bad economy).” (Fielding, 2001. Bridget Jones: The Edge of Reason)