Masaryk University Economic Seminars

Standard economic arguments suggest that state dependence is a reason to value flexibility. This paper shows that it can instead generate demand for commitment when individuals anticipate that future states will distort their decisions. A conceptual framework formalizes sophistication about distortions arising from two channels: state-dependent valuations (e.g., projection bias) and state-dependent decision mistakes (e.g., scarcity effects). We test its predictions in a field experiment in Uganda, where farmers can commit to purchasing pay-at-harvest crop insurance---a product that aligns the timing of payment and payouts, thereby removing the conventional present-bias mechanism for commitment. Forty percent of farmers commit to purchase the insurance for two seasons. An intervention increasing sophistication about future state dependence increases commitment demand by 11 percentage points. Additional evidence on state-contingent commitment suggests heterogeneity by proxies for both projection bias and scarcity, consistent with the two modeled channels. Our results have implications for welfare analysis and policy design, especially in environments with high state variability.
(joint with Lorenzo Casaburi and Jack Willis)

Sili Zhang is an Assistant Professor of Economics at the Ludwig Maximilian University of Munich (LMU). She received her PhD from the University of Zurich in 2022. Sili is a behavioral economist interested in understanding what shapes the way we see the world and its implications. Specifically, her research focuses on the role of (i) perceptions, (ii) narratives, and (iii) values in individual beliefs and economic behaviors.