[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/zbw/wzbmbh/spii2015201.html
   My bibliography  Save this paper

A note on the welfare of a sophisticated time-inconsistent decision-maker

Author

Listed:
  • Kodritsch, Sebastian
Abstract
I examine the circumstances under which a sophisticated time-inconsistent decisionmaker (i) will not or (ii) need not severely miscoordinate her behavior across time, in the sense of following a course of action which fails to be Pareto-optimal for the sequence of temporal selves of the individual (Laibson [1994] and O'Donoghue and Rabin [1999] provide prominent instances of such miscoordination). Studying the standard solution concept for this case - Strotz-Pollak equilibrium - in general decision problems with perfect information, I establish two results: first, for finite-horizon problems without indifference, essential consistency (Hammond [1976]) is sufficient for choice to be Pareto-optimal. Second, if the decision problem satisfies a certain history-independence property, whenever an equilibrium outcome fails to be Pareto-optimal, it is Pareto-dominated by another equilibrium outcome, leading to an existence result for a Pareto-optimal solution.

Suggested Citation

  • Kodritsch, Sebastian, 2015. "A note on the welfare of a sophisticated time-inconsistent decision-maker," Discussion Papers, Research Unit: Market Behavior SP II 2015-201, WZB Berlin Social Science Center.
    • Handle: RePEc:zbw:wzbmbh:spii2015201
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/107133/1/818335734.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Per Krusell & Anthony A. Smith, Jr., 2003. "Consumption--Savings Decisions with Quasi--Geometric Discounting," Econometrica, Econometric Society, vol. 71(1), pages 365-375, January.
    2. R. A. Pollak, 1968. "Consistent Planning," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(2), pages 201-208.
    3. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    4. R. H. Strotz, 1955. "Myopia and Inconsistency in Dynamic Utility Maximization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 23(3), pages 165-180.
    5. Goldman, Steven Marc, 1979. "Intertemporally Inconsistent Preferences and the Rate of Consumption," Econometrica, Econometric Society, vol. 47(3), pages 621-626, May.
    6. Ted O'Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 121-160.
    7. Bezalel Peleg & Menahem E. Yaari, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 391-401.
    8. B. Douglas Bernheim & Debraj Ray & Şevin Yeltekin, 2015. "Poverty and Self‐Control," Econometrica, Econometric Society, vol. 83(5), pages 1877-1911, September.
    9. Geir B. Asheim, 1997. "Individual and Collective Time-Consistency," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(3), pages 427-443.
    10. Piccione, Michele & Rubinstein, Ariel, 1997. "On the Interpretation of Decision Problems with Imperfect Recall," Games and Economic Behavior, Elsevier, vol. 20(1), pages 3-24, July.
    11. Steven M. Goldman, 1980. "Consistent Plans," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(3), pages 533-537.
    12. Ferdinand M. Vieider & Clara Villegas-Palacio & Peter Martinsson & Milagros Mejía, 2016. "Risk Taking For Oneself And Others: A Structural Model Approach," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 879-894, April.
    13. Peter J. Hammond, 1976. "Changing Tastes and Coherent Dynamic Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(1), pages 159-173.
    14. Robert J. Barro, 1999. "Ramsey Meets Laibson in the Neoclassical Growth Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1125-1152.
    15. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    16. Harris, Christopher J, 1985. "Existence and Characterization of Perfect Equilibrium in Games of Perfect Information," Econometrica, Econometric Society, vol. 53(3), pages 613-628, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Onur Kesten & Morimitsu Kurino & Alexander S. Nesterov, 2017. "Efficient lottery design," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 48(1), pages 31-57, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tyson, Christopher J., 2008. "Management of a capital stock by Strotz's naive planner," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2214-2239, July.
    2. Tyson, Christopher J., 2008. "Management of a capital stock by Strotz's naive planner," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2214-2239, July.
    3. Hammond, Peter J & Zank, Horst, 2013. "Rationality and Dynamic Consistency under Risk and Uncertainty," The Warwick Economics Research Paper Series (TWERPS) 1033, University of Warwick, Department of Economics.
    4. Tyson, Christopher J., 2008. "Management of a capital stock by Strotz's naive planner," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2214-2239, July.

    More about this item

    Keywords

    time-inconsistency; multi-selves approach; Strotz-Pollak equilibrium; welfare; Pareto-optimality;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:wzbmbh:spii2015201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vawzbde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.