Behavioral Characterizations of Naivete for Time-Inconsistent Preferences

58 Pages Posted: 22 Aug 2018

See all articles by David S. Ahn

David S. Ahn

University of California, Berkeley - Department of Economics

Ryota Iijima

Yale University - Cowles Foundation

Yves Le Yaouanq

Ludwig Maximilian University of Munich (LMU)

Todd Sarver

Duke University - Department of Economics

Date Written: July 11, 2018

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.

Keywords: Naive, sophisticated, time inconsistent, comparative statics

Suggested Citation

Ahn, David S. and Iijima, Ryota and Le Yaouanq, Yves and Sarver, Todd, Behavioral Characterizations of Naivete for Time-Inconsistent Preferences (July 11, 2018). Economic Research Initiatives at Duke (ERID) Working Paper No. 238, rev., Available at SSRN: https://ssrn.com/abstract=3230068 or http://dx.doi.org/10.2139/ssrn.3230068

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 - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Yves Le Yaouanq

Ludwig Maximilian University of Munich (LMU)

Geschwister-Scholl-Platz 1
Munich, DE 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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