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Behavioral Characterizations of Naivete for Time-Inconsistent Preferences

Author

Listed:
  • Ahn, David S.

    (University of California)

  • Iijima, Ryota

    (Yale University)

  • Le Yaouanq, Yves

    (LMU Munich)

  • Sarver, Todd

    (Duke University)

Abstract

We propose nonparametric definitions of absolute and comparative naivete. These definitions leverage ex-ante choice of menu to identify predictions of future behavior and ex-post (random) choices from menus to identify actual behavior. The main advantage of our definitions is their independence from any assumed functional form for the utility function representing behavior. An individual is sophisticated if she is indifferent ex ante between retaining the option to choose from a menu ex post or committing to her actual distribution of choices from that menu. She is naive if she prefers the flexibility in the menu, reflecting a mistaken belief that she will act more virtuously than she actually will. We propose two definitions of comparative naivete and explore the restrictions implied by our definitions for several prominent models of time inconsistency.

Suggested Citation

  • Ahn, David S. & Iijima, Ryota & Le Yaouanq, Yves & Sarver, Todd, 2018. "Behavioral Characterizations of Naivete for Time-Inconsistent Preferences," Rationality and Competition Discussion Paper Series 127, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:127
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    Cited by:

    1. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2022. "Time-consistent equilibria in dynamic models with recursive payoffs and behavioral discounting," Journal of Economic Theory, Elsevier, vol. 204(C).
    2. Mihm, Maximilian & Ozbek, Kemal, 2019. "On the identification of changing tastes," Games and Economic Behavior, Elsevier, vol. 116(C), pages 203-216.
    3. Masatlioglu, Yusufcan & Nakajima, Daisuke & Ozdenoren, Emre, 2020. "Willpower and compromise effect," Theoretical Economics, Econometric Society, vol. 15(1), January.
    4. Liang Guo, 2023. "The Mnemonomics of Contractual Screening," Management Science, INFORMS, vol. 69(3), pages 1739-1757, March.
    5. Ahn, David S. & Iijima, Ryota & Sarver, Todd, 2020. "Naivete about temptation and self-control: Foundations for recursive naive quasi-hyperbolic discounting," Journal of Economic Theory, Elsevier, vol. 189(C).
    6. Tang, Rui & Zhang, Mu, 2023. "Motivated naivete," Journal of Economic Theory, Elsevier, vol. 209(C).
    7. Daniele Pennesi, 2021. "Between Commitment and Flexibility: Revealing Anticipated Regret and Elation," Working papers 071, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

    More about this item

    Keywords

    naive; sophisticated; time inconsistent; comparative statics;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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