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Naiveté and sophistication in dynamic inconsistency

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  • Méder, Zsombor Z.
  • Flesch, János
  • Peeters, Ronald

Abstract

This paper introduces a general framework for dealing with dynamic inconsistency in the context of Markov decision problems. It decouples and examines concepts that are often entwined in the literature. It distinguishes between the decision maker and her various temporal selves, and between the beliefs and intentions of the selves. The creation of a unified formalism to deal with dynamic inconsistency allows for the introduction of a hybrid decision maker, who is naive sometimes, sophisticated at others. Such a hybrid decision maker can be used to model situations where type determination is endogenous. Interestingly, the analysis of hybrid types indicates that self-deception can be optimal.

Suggested Citation

  • Méder, Zsombor Z. & Flesch, János & Peeters, Ronald, 2017. "Naiveté and sophistication in dynamic inconsistency," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 40-54.
  • Handle: RePEc:eee:matsoc:v:87:y:2017:i:c:p:40-54
    DOI: 10.1016/j.mathsocsci.2017.02.002
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    1. Zhao, Qian & Wang, Rongming & Wei, Jiaqin, 2016. "Exponential utility maximization for an insurer with time-inconsistent preferences," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 89-104.

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