Misinterpreting Yourself *

Abstract

We model an agent who stubbornly underestimates his undesirable motives, and misattributes behavior resulting from these motives to other considerations. Applying the framework to partially naive present bias, we show that in many stable situations, the agent eventually predicts his behavior well. This "apparent sophistication" implies that existing empirical tests of sophistication in intertemporal choice can reach incorrect conclusions. The agent's unrealistic self-view does, however, manifest itself in several ways. First, he comes to act in a more presentbiased manner than a sophisticated agent. Second, he systematically mispredicts how he will react when circumstances change, such as when incentives for forward-looking behavior increase or he is placed in a new, ex-ante identical environment. Third, even for physically non-addictive products, he follows addiction-like consumption dynamics that he does not anticipate. Fourth, he holds beliefs that-when compared to those of other agents-display puzzling correlations between logically unrelated issues. We also apply our framework to provide a novel perspective on implicit bias, showing that a naive endorsement of egalitarian standards may be harmful for behavior. Consequently, making a person aware of his subsconscious prejudice can mitigate his biased behavior even absent eliminating the prejudice itself.

Keywords: present bias, naivete, sophistication, misspecified learning, apparent sophistication, implicit bias, prejudice JEL Codes: D91, D83, D11