Misinterpreting Yourself *

67 Pages Posted: 18 Jan 2023

See all articles by Paul Heidhues

Paul Heidhues

Heinrich Heine University Dusseldorf

Botond Koszegi

University of Bonn - Department of Economics

Philipp Strack

Yale, Department of Economics

Date Written: January 16, 2023

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

Suggested Citation

Heidhues, Paul and Koszegi, Botond and Strack, Philipp, Misinterpreting Yourself * (January 16, 2023). Available at SSRN: https://ssrn.com/abstract=4325160 or http://dx.doi.org/10.2139/ssrn.4325160

Paul Heidhues

Heinrich Heine University Dusseldorf ( email )

Universitätsstrasse 1
Duesseldorf, DE NRW 40225
Germany

Botond Koszegi

University of Bonn - Department of Economics ( email )

Bonn
Germany

Philipp Strack (Contact Author)

Yale, Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
527
Abstract Views
1,586
Rank
101,715
PlumX Metrics