Naivet� About Temptation and Self-Control: Foundations for Naive Quasi-Hyperbolic Discounting

Davis S. Ahn, Ryota Iijima () and Todd Sarver
Additional contact information
Davis S. Ahn: University of California, Berkeley
Ryota Iijima: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/ryota-iijima

No 2099R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We introduce and characterize a recursive model of dynamic choice that accommodates naivete about present bias. While recursive representations are important for tractable analysis of in nite-horizon problems, the commonly-used Strotz model of time inconsistency presents well-known technical difficulties in extensions to dynamic environments. Our model incorporates costly self-control in the sense of Gul and Pesendorfer (2001) to overcome these hurdles. The important novel condition is an axiom for naivete. We first introduce appropriate definitions of absolute and comparative naivete for a simple two-period model, and explore their implications for the costly self-control model. We then develop suitable extensions of these definitions to in nite-horizon environments. Incorporating the definition of absolute naivete as an axiom, we characterize a recursive representation of naive quasi-hyperbolic discounting with self-control for an individual who is jointly overoptimistic about her present-bias factor and her ability to resist instant gratification. We also study the implications of our proposed comparison of naivete for this recursive representation and uncover new restrictions on the present-bias and self-control parameters that characterize comparative naivete. Finally, we discuss the subtleties that preclude more general notions of naivete, and illuminate the impossibility of a definition that simultaneously accommodates both random choice and costly self-control.

Keywords: Naive; Sophisticated; Self-control; Quasi-hyperbolic discounting (search for similar items in EconPapers)
JEL-codes: D11 D15 D91 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017-08, Revised 2018-02
New Economics Papers: this item is included in nep-evo, nep-mic and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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