The Economics of Prospective Memory

Abstract

We develop a model of prospective memory, defined as the capacity to recall actions to be carried out in the future. An agent faces some task with stochastic cost c t, benefit b, and T periods until some exogenously imposed deadline. The agent can only execute the task at time t if the task is recalled in that period. The memory process exhibits the rehearsal property that the probability of recall is lower if the task was forgotten in the recent past. The agent sets a threshold cost each period based on her expectations of whether she will recall and carry out the task in future periods. If the task is recalled at time t, and the draw from the cost distribution is below this threshold, the task is executed. We then introduce memory overconfidence into the model, which we define as either overestimating the base likelihood of recall in future periods or underestimating the effect of temporary forgetting on subsequent recall. Memory overconfidence leads not only to inefficiently low rates of task completion, but also to the prediction that the probability of task completion may vary inversely with the length of time allocated to completing the task. We discuss the interaction of these effects with present-biased preferences, and provide examples of economic scenarios where this dynamic may be exploited by firms to the detriment of consumers.