Games with Time Inconsistent Players

27 Pages Posted: 2 Jan 2007

Date Written: February 2006

Abstract

We embed time inconsistent agents (players) in non-cooperative games. To solve such games, we introduce two solution concepts, which we refer to as equilibrium and naive backwards induction. When all players are sophisticated time inconsistent, these solution concepts are equivalent and coincide with the standard notions of SPNE and backwards induction (in finite games of perfect information). When some players are naive time inconsistent, however, these solution concepts (may, and most likely will) lead to different predictions. We apply these solution concepts on two well-known economic applications, the alternating-offers bargaining game and the durable good monopoly, and we explore their relative strengths and weaknesses.

Keywords: time inconsistent preferences, naive time inconsistent preferences, games with time inconsistent preferences, solution concepts

JEL Classification: C72, D90

Suggested Citation

Sarafidis, Yianis, Games with Time Inconsistent Players (February 2006). Available at SSRN: https://ssrn.com/abstract=954394 or http://dx.doi.org/10.2139/ssrn.954394

Yianis Sarafidis (Contact Author)

Charles River Associates (CRA) ( email )

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