Highbrow Films Gather Dust: Time-Inconsistent Preferences and Online DVD Rentals

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Operations, Information and Decisions Papers
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intrapersonal conflict
time-inconsistent preferences
present bias
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Recreation Business
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Milkman, Katherine L
Rogers, Todd
Bazerman, Max H

We report on a field study demonstrating systematic differences between the preferences people anticipate they will have over a series of options in the future and their subsequent revealed preferences over those options. Using a novel panel data set, we analyze the film rental and return patterns of a sample of online DVD rental customers over a period of four months. We predict and find that should DVDs (e.g., documentaries) are held significantly longer than want DVDs (e.g., action films) within customer. Similarly, we also predict and find that people are more likely to rent DVDs in one order and return them in the reverse order when should DVDs are rented before want DVDs. Specifically, a 1.3% increase in the probability of a reversal in preferences (from a baseline rate of 12%) ensues if the first of two sequentially rented movies has more should and fewer want characteristics than the second film. Finally, we find that as the same customers gain more experience with online DVD rentals, the extent to which they hold should films longer than want films decreases. Our results suggest that present bias has a meaningful impact on choice in the field, and that people may learn about their present bias with experience and, as a result, gain the capacity to curb its influence.

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Management Science
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At the time of publication, author Katherine L. Milkman was affiliated with the Harvard Business School, Harvard University. Currently (July 2016), he is a faculty member in the Operation, Information and Decision Making Department of the Wharton School at the University of Pennsylvania.
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