Behavioural Characterizations of Naivete for Time-Inconsistent Preferences

Ahn, David S.; Iijima, Ryota; Le Yaouanq, Yves and Sarver, Todd (2019): Behavioural Characterizations of Naivete for Time-Inconsistent Preferences. In: Review of Economic Studies, Vol. 86, No. 6: pp. 2319-2355

Abstract

We propose non-parametric definitions of absolute and comparative naivete. These definitions leverage ex ante choice of menu to identify predictions of future behaviour and ex post (random) choices from menus to identify actual behaviour. The main advantage of our definitions is their independence from any assumed functional form for the utility function representing behaviour. 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.

• Item Type: Journal article
• Faculties: Economics
• Subjects: 300 Social sciences > 330 Economics
• ISSN: 0034-6527
• Language: English