Behavioral Characterizations of Naiveté for Time-Inconsistent Preferences
60 Pages Posted: 17 Nov 2016
Date Written: November 14, 2016
We propose nonparametric definitions of absolute and comparative naiveté. 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 between choosing from a menu ex post or committing to the actual distribution of choices 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. We propose two definitions of comparative naiveté and explore the restrictions implied by our definitions for several prominent models of time inconsistency. Finally, we discuss the implications of general naiveté for welfare and the design of commitment devices.
Keywords: Naive, Sophisticated, Time Inconsistent, Comparative Statics
JEL Classification: D03, D81, D84
Suggested Citation: Suggested Citation