Article

Naive, resolute or sophisticated? A study of dynamic decision making

LUISS Rome Italy; University of York Department of Economics & Related Studies Heslington York YO10 5DD UK
Journal of Risk and Uncertainty (Impact Factor: 1.53). 02/2009; 38(1):1-25. DOI: 10.1007/s11166-008-9058-5
Source: RePEc

ABSTRACT 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 decisions and evaluations) in order to distinguish these three possibilities. We 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 behaviour of people in dynamic situations.

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