Dynamically inconsistent decision makers have to decide, implicitly or explicitly, what to do about their dynamic inconsistency. Economic theorists have identified three possible responses: to act naively (thus ignoring the dynamic inconsistency), to act resolutely (not letting their inconsistency affect their behaviour) or to act sophisticatedly (hence taking into account their inconsistency). We use data from a unique experiment (which observes both behaviour and preferences) in order to distinguish these three possibilities. We find that the majority of subjects are resolute, a substantial proportion are naïve and very few are sophisticated. These results have important implications for predicting the behaviour of people in dynamic situations.
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Find related papers by JEL classification: D90 - Microeconomics - - Intertemporal Choice and Growth - - - General D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
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