Behavioral Characterizations of Naiveté for Time-Inconsistent Preferences

60 Pages Posted: 17 Nov 2016  

David S. Ahn

University of California, Berkeley - Department of Economics

Ryota Iijima

Yale University - Yale

Yves Le Yaouanq

Ludwig Maximilian University of Munich

Todd Sarver

Duke University - Department of Economics

Date Written: November 14, 2016

Abstract

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

Ahn, David S. and Iijima, Ryota and Le Yaouanq, Yves and Sarver, Todd, Behavioral Characterizations of Naiveté for Time-Inconsistent Preferences (November 14, 2016). Economic Research Initiatives at Duke (ERID) Working Paper No. 238. Available at SSRN: https://ssrn.com/abstract=2870756

David S. Ahn

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

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

Ryota Iijima

Yale University - Yale

127 Wall Street
New Haven, CT 06511
United States

Yves Le Yaouanq

Ludwig Maximilian University of Munich

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

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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