A fair number of people buy expensive gym memberships to commit themselves to exercising.Yet,data from health clubs show that many do not follow through with their intentions and end up losing money on their membership contracts.Which of the following could explain this behavior?
A) People have a tendency to pursue immediate gratification in a way that their 'long-run selves' do not appreciate (quoted from Ted O'Donoghue and Matthew Rabin, "Choice and Procrastination," Quarterly Journal of Economics, February 2001, pp. 125-26.)
B) People tend to be overly optimistic about their future behavior so much so that after making an expensive investment in the membership, they overate the dividends they expect to reap.
C) People fail to ignore the sunk cost of a gym membership when making the purchase.
D) People realize after the fact that they have made a mistake but unfortunately memberships are often not transferable and not refundable.

Question

Quizplus · Accepted Answer

The option B suggests that people tend to be overly optimistic about their future behavior after committing to an expensive investment like a gym membership. This is known as projection bias, which refers to people's tendency to overestimate their future preferences and behavior based on their current state. Therefore, people may think that they will exercise regularly after buying a gym membership but fail to follow through with their intentions. This behavior can lead to losing money on membership contracts. The other options (A, C, and D) are not relevant to the given scenario as they do not directly explain the behavior of buying expensive gym memberships but not following through with exercising.

A Fair Number of People Buy Expensive Gym Memberships to Commit