Possibly worth noting that the ‘investment’ concept of habit formation doesn’t require any particular schedule. Consequently, there’s no particular reason to choose one of Bill’s alternatives over the other on the basis of better habit formation, at least as discussed here.

Its true – and to be honest it was the idea of exercise, and changes to what you consume in terms of your diet, that really motivate that view.

Habits just seem like a great way to invest in time consistent strategies.  Seems like a good example to use for whatever level they teach this stuff at in university nowadays.

I quite like that view, and it is consistent with exercise advice. It takes X time to develop a habit, after which the activity is less onerous. So, if exercise is good for you in the long term, developing the habit now is an investment in creating consistency in behaviour over time.
The alternative to a habit is to decide each day to exercise. That is, you can either:
– develop a habitual schedule of exercise, or
– just choose each day what exercise you will do and when.
Over time, option 2 will require more effort of will. 

All good stuff thanks.  I read a bit of Rabin a few years back, but can’t recall anything on habits in that sitting – I think it was more the methodology of behavioural economics type jazz.

I’m glad you raised the direct bounded rationality and cognative limits argument, as that is undeniably true.

Most of the literature I see treats habits as a preference, and even then the preference can be treated quite loosely relative to other preferences.

http://emlab.berkeley.edu/~szeidl/papers/commit_habit.pdf

(That seems like a cool paper, I’m putting it here so I can go back to it later ..)

Although rational addiction can be said to allow the habit to be determined by choice:

http://research.chicagobooth.edu/economy/research/articles/71.pdf

I really just want to find literature that states that habits can be seen as constraints, and so forward looking agents could use them to put themselves on time-consistent paths to improve outcomes for themselves.

Essentially I’m looking for more ammo for whenever James and me banter about time inconsistency 😉

Indeed it is.

I have been criticised on those grounds a number of times – which is why I wanted to just write a post making sure that my view of the “economics core” was able to handle such things.

I especially like the view that investment in a habit can be used by an individual as a commitment device – because it FEELS like things I do.  Not very sciency of me I know 😀

Indeed, I wouldn’t disagree with this in the slightest.  Of course, that was not a claim I went anywhere near in this post 😉

But IMO, the only way to truly show this is to consistently include habit formation in a description of the individual – as the formation of habits are part of the scope of preferences and behaviour that we discover when we look at our own actions.

By doing so I am in no way suggesting that we need to change peoples behaviour because of habits – if anything, rationally describing habits gives us an argument against comments like those made by Justin Wolfers when he was calling the limits on soda size a great idea.

The core of economics is the set of tools we can use for description and explanation – and this issue which economists are often attacked for “not understanding” actually fits inside our core.  It is a defence of the method, and a call to improve understanding – not a call to increase regulation of peoples choices.