Behavioral Characterizations of Naiveté for Time-Inconsistent Preferences
58 Pages Posted: 3 Dec 2018
Date Written: November 18, 2018
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
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