A Fair Number of People Buy Expensive Gym Memberships to Commit

question 131

Multiple Choice

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.

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Definitions:

Pay

Compensation received by an employee from an employer in exchange for performing a job.

Thirty Year Mortgage

A long-term home loan typically repaid over 30 years through fixed monthly payments, often with a fixed interest rate.

Monthly Payment

The amount paid each month on a loan, mortgage, or other debt obligation.

APR

Annual Percentage Rate; the annual rate charged for borrowing or earned through an investment, accounting for fees and compound interest.