Comparative Measures of Naiveté

41 Pages Posted: 29 Apr 2015

See all articles by David S. Ahn

David S. Ahn

University of California, Berkeley - Department of Economics

Todd Sarver

Duke University - Department of Economics

Date Written: April 28, 2015

Abstract

We propose nonparametric definitions of absolute and comparative naiveté. These definitions leverage both ex-ante choice of menu to identify individuals' projections of their future behavior and ex-post choice from menus to identify their actual behavior. Their main advantage is their independence from any assumed functional form for the utility function representing behavior. An individual is sophisticated if she is indifferent between choosing from a menu ex post or committing to the actual choice from that menu ex ante. 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. One individual is more naive than another if she is both more optimistic about her future behavior while actually being less virtuous. In the case of Strotzian preferences, absolute naiveté implies that beliefs are a convex combination of virtuous and temptation utility, while comparative naiveté implies that the more naive individual's beliefs puts more weight than a more sophisticated individual on her virtuous utility, while her actual behavior puts more weight on the temptation utility. In different specifications of the underlying Strotzian preferences, such as quasi-hyperbolic discounting, the definitions impose further intuitive restrictions, such as inequalities on believed and actual present-bias factors. We propose suitable definitions for random choice. Finally, we discuss the implications of naiveté for welfare and the design of commitment devices.

Keywords: Naive, sophisticated, time inconsistent, comparative statics

JEL Classification: D03, D81, D84

Suggested Citation

Ahn, David S. and Sarver, Todd, Comparative Measures of Naiveté (April 28, 2015). Economic Research Initiatives at Duke (ERID) Working Paper No. 186, Available at SSRN: https://ssrn.com/abstract=2600209 or http://dx.doi.org/10.2139/ssrn.2600209

David S. Ahn

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Todd Sarver (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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