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

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Abstract

We introduce and characterize a recursive model of dynamic choice that accommodates naivet� about present bias. The model incorporates costly self-control in the sense of Gul and Pesendorfer (2001) to overcome the technical hurdles of the Strotz representation. The important novel condition is an axiom for naivet�. We first introduce appropriate definitions of absolute and comparative naivet� for a simple two-period model, and explore their implications for the costly self-control model. We then extend this definition for infinite-horizon environments, and discuss some of the subtleties involved with the extension. Incorporating the definition of absolute naivet� 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 study the implications of our proposed comparison of naivet� for the parameters of the recursive representation. Finally, we discuss the obstacles that preclude more general notions of naivet�, and illuminate the impossibility of a definition that simultaneously incorporates both random choice and costly self-control. devices.

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  • David S. Ahn & Ryota Iijima & Todd Sarver, 2017. "Naivet� About Temptation and Self-Control: Foundations for Naive Quasi-Hyperbolic Discounting," Cowles Foundation Discussion Papers 2099, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:2099
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    More about this item

    Keywords

    Naive; Sophisticated; Self-control; Quasi-hyperbolic discounting;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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