Present Pain, Future Gain: Overcoming Present Bias in Exercise Class Reservations via Mechanism Design

Abstract

From skipped exercise classes to last-minute cancellation of dentist appointments, underutilization of reserved resources abounds, arising from uncertainty about the future and further exacerbated by present bias, the constant struggle between our current and future selves. Perhaps recognizing this, many businesses use penalties to promote utilization, but such penalties are usually set through trial and error, do not adapt to the popularity of resources, and do not accommodate the needs of individuals. This thesis unites resource allocation and commitment devices through the design of contingent payment mechanisms to mitigate present-biased behavior and increase resource utilization. We propose a two-bid contingent second price (CSP) mechanism, which allocates resources to the more reliable agents and sets no-show penalties that guarantee straightforward participation and provide sufficient commitment. Via simulations, we show that, with present bias, the two-bid CSP mechanism not only improves utilization, but also often achieves higher welfare than mechanisms that are welfare-optimal for rational agents. Finally, we leverage the theoretical findings in an empirical exploration of class attendance data from an indoor cycling studio, examining the effect of differing penalty policies on attendance behavior and characterizing the heterogeneous customer population by their level of present bias and value for attending classes. The results motivate the application of mechanisms that balance utilization with welfare considerations to real-world settings and provide practical insights into designing reservation platforms.