Naiveté About Temptation and Self-Control: Foundations for Naive Quasi-Hyperbolic Discounting

49 Pages Posted: 13 Aug 2017

See all articles by David S. Ahn

David S. Ahn

University of California, Berkeley - Department of Economics

Ryota Iijima

Yale University - Cowles Foundation

Todd Sarver

Duke University - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: August 9, 2017

Abstract

We introduce and characterize a recursive model of dynamic choice that accommodates naiveté about present bias. The model incorporates costly self-control in the sense of Gul and Pesendorfer (2001) to overcome the technical hurdles of the Strotz representation. The important novel condition is an axiom for naiveté. We first introduce appropriate definitions of absolute and comparative naiveté for a simple two-period model, and explore their implications for the costly self-control model. We then extend this definition for infinite-horizon environments, and discuss some of the subtleties involved with the extension. Incorporating the definition of absolute naiveté as an axiom, we characterize a recursive representation of naive quasi-hyperbolic discounting with self-control for an individual who is jointly overoptimistic about her present-bias factor and her ability to resist instant gratification. We study the implications of our proposed comparison of naiveté for the parameters of the recursive representation. Finally, we discuss the obstacles that preclude more general notions of naiveté, and illuminate the impossibility of a definition that simultaneously incorporates both random choice and costly self-control.

Keywords: Naive, Sophisticated, Self-Control, Quasi-Hyperbolic Discounting

JEL Classification: D11, D15, D91

Suggested Citation

Ahn, David S. and Iijima, Ryota and Sarver, Todd, Naiveté About Temptation and Self-Control: Foundations for Naive Quasi-Hyperbolic Discounting (August 9, 2017). Cowles Foundation Discussion Paper No. 2099, Available at SSRN: https://ssrn.com/abstract=3017221 or http://dx.doi.org/10.2139/ssrn.3017221

David S. Ahn

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

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

Ryota Iijima (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Todd Sarver

Duke University - Department of Economics ( email )

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

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