ABSTRACT
This chapter explores the market and policy responses to consumers with present-biased preferences. It begins with an analysis of the profit-maximizing pricing strategy (in the form of a two-part tariff) when consumers are present-biased. The chapter then considers evidence — in the contexts of tipping, organ donations, and retirement savings — for the significant impact of defaults on behavior. This evidence can be explained by present-biased preferences and has implications for both profit-maximizing firms and public policy. Finally, there is an analysis of both a nudge policy and tax policy designed to discourage consumption of “sin” goods like unhealthy food.
