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Misinterpreting Yourself

Author

Listed:
  • Paul Heidhues

    (Heinrich Heine University Düsseldorf & DICE)

  • Botond Kőszegi

    (University of Bonn)

  • Philipp Strack

    (Yale University)

Abstract

We model an agent who stubbornly underestimates how much his behavior is driven by undesirable motives, and, attributing his behavior to other considerations, updates his views about those considerations. We study general properties of the model, and then apply the framework to identify novel implications of partially naive present bias. In many stable situations, the agent appears realistic in that he eventually predicts his behavior well. His unrealistic self-view does, however, manifest itself in several other ways. First, in basic settings he always comes to act in a more present-biased manner than a sophisticated agent. Second, he systematically mispredicts how he will react when circumstances change, such as when incentives for forwardlooking behavior increase or he is placed in a new, ex-ante identical environment. Third, even for physically non-addictive products, he follows empirically realistic addiction-like consumption dynamics that he does not anticipate. Fourth, he holds beliefs that — when compared to those of other agents — display puzzling correlations between logically unrelated issues. Our model implies that existing empirical tests of sophistication in intertemporal choice can reach incorrect conclusions. Indeed, we argue that some previous findings are more consistent with our model than with a model of correctly specified learningsophistication in intertemporal choice can reach incorrect conclusions. Indeed, we argue that some previous findings are more consistent with our model than with a model of correctly specified learning.

Suggested Citation

  • Paul Heidhues & Botond Kőszegi & Philipp Strack, 2024. "Misinterpreting Yourself," ECONtribute Discussion Papers Series 317, University of Bonn and University of Cologne, Germany.
  • Handle: RePEc:ajk:ajkdps:317
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_317_2024.pdf
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    References listed on IDEAS

    as
    1. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, vol. 84(3), pages 396-418, June.
    2. Esteban Petruzzello, 2019. "Testing for forward-looking behaviour: evidence from the enactment of smoking restrictions," Applied Economics, Taylor & Francis Journals, vol. 51(19), pages 2061-2069, April.
    3. Esponda, Ignacio & Pouzo, Demian & Yamamoto, Yuichi, 2021. "Asymptotic behavior of Bayesian learners with misspecified models," Journal of Economic Theory, Elsevier, vol. 195(C).
    4. B. Douglas Bernheim & Antonio Rangel, 2004. "Addiction and Cue-Triggered Decision Processes," American Economic Review, American Economic Association, vol. 94(5), pages 1558-1590, December.
    5. Takeshi Murooka & Yuichi Yamamoto, 2021. "Multi-Player Bayesian Learning with Misspecified Models," OSIPP Discussion Paper 21E001, Osaka School of International Public Policy, Osaka University.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Present bias; naivete; sophistication; misspecified learning; apparent sophistication; implicit bias; prejudice;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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