Naïve, Resolute Or Sophisticated? A Study Of Dynamic Decision Making
Source: University of York
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 behavior) or to act sophisticatedly (hence taking into account their inconsistency). The authors use data from a unique experiment (which observes both decisions and evaluations) in order to distinguish these three possibilities. They find that the majority of subjects are either naïve or resolute (with slightly more being naïve) but very few are sophisticated. These results have important implications for predicting the behavior of people in dynamic situations.