Time Inconsistency and Self-Control Optimization Problems: Progress and Challenges

Yun Shi () and Xiangyu Cui ()
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Yun Shi: Shanghai University
Xiangyu Cui: Shanghai University of Finance and Economics

Chapter Chapter 3 in Optimization and Control for Systems in the Big-Data Era, 2017, pp 33-42 from Springer

Abstract: Abstract Time inconsistency has been an important issue in many stochastic decision problems arisen in real life and financial decision making, especially in the dynamic investment area. When a stochastic decision problem is time inconsistent, the decision maker would be puzzled by his/her conflicting decisions “optimally” derived from his/her time-varying preferences at different time instants. In the literature, the time inconsistent problem is also called the self-control problem, as the decision maker needs to exert proper self-control to resist present temptation and then achieve a better long-term performance. Different approaches dealing with time inconsistency in the literature are reviewed in this paper. After that, the open questions and challenges are also discussed.

Keywords: Time inconsistency; Self-control; Present bias; Non-separable problem; Quasi-hyperbolic discounting function; Dynamic portfolio optimization (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/978-3-319-53518-0_3

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