In an article in the Quarterly Journal of Economics, Ted O'Donoghue and Matthew Rabin made the following observation: "People have self-control problems caused by a tendency to pursue immediate gratification in a way that their 'long-run selves' do not appreciate." What do they mean by people's "long-run selves"? Give two examples of people pursuing immediate gratification that their longrun selves would not appreciate.

Immediate gratification refers to the desire to experience pleasure or fulfillment without delay or deferment. In terms of economics, this concept involves consumers choosing to receive a benefit right now rather than waiting for a potentially larger or more enduring benefit in the future.

For instance, when someone impulsively buys a luxury item on credit rather than saving the money for a more significant future purchase, they are opting for immediate gratification. This choice might feel satisfying in the short term, but it can lead to financial strain due to accumulating interest and a decreased ability to afford future expenses.

Another example is procrastination, where an individual might choose to watch a movie instead of studying for an exam. The enjoyment is immediate, but the long-term consequence could be poor academic performance, which could impact career opportunities. These choices emphasize the human tendency to prioritize present comfort over future benefits, which economic models try to factor into understanding consumer behavior.

Our 'long-run selves' represent our future identity, projecting our current decisions' long-term outcomes and how they align with our ultimate goals and well-being. The concept plays a crucial role in examining the implications of economic choices over time.

When individuals prioritize their long-run selves, they make decisions that may require present sacrifices but offer significant future payoffs. For example, investing in education may mean foregoing immediate earnings by not working full-time. However, the increased knowledge and qualifications can lead to better job opportunities and higher lifetime earnings.

Conversely, when individuals neglect their long-run selves, they might indulge in behaviors like overspending or neglecting health, which can result in future financial or physical hardships. Economic models must account for how individuals weigh their short-term desires against their long-term well-being when predicting economic decision-making.

Economic decision-making is the process by which individuals, households, firms, and governments make choices about the allocation of resources. Self-control plays a pivotal role in this process, as it involves evaluating the costs and benefits associated with different courses of action.

A key component in economic decision-making is the trade-off between present consumption and future savings. Economists use tools like present value and discount rates to model how individuals value future benefits compared to immediate ones. High discount rates indicate a strong preference for immediate rewards, often leading to choices that satisfy short-term urges, such as impulsive shopping or indulgent eating habits.

Understanding these concepts helps explain why people might overconsume resources or fail to invest in their futures, despite knowing the potential negative consequences. Economic policies and personal financial planning often try to mitigate these tendencies, encouraging actions that favor long-term benefits over short-term gains.