Article

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

LUISS Rome Italy
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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Available from: Gianna Lotito, Aug 30, 2015
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    • "pre-commitment is available. 9 Expanding on these findings, Hey and Lotito (2009) propose an experiment where both behaviour and preferences are investigated. They use data on tree evaluations together with data on choices and find evidence that the strategy method, as opposed to that of backward induction, is followed by the majority of subjects. "
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    ABSTRACT: Potentially dynamically-inconsistent individuals create particular problems for economics, as their behaviour depends upon whether and how they attempt to resolve their potential inconsistency. This paper reports on the results of a new experiment designed to help us distinguish between the different types that may exist. We classify people into four types: myopic, naïve, resolute and sophisticated. We implement a new and simple experimental design in which subjects are asked to take two sequential decisions (interspersed by a random move by Nature) concerning the allocation of a given sum of money. The resulting data enables us to classify the subjects. We find that the majority are resolute, a significant few are sophisticated, rather few are naïve and similarly few are myopic.
    Journal of Risk and Uncertainty 04/2011; 42(2):85-123. DOI:10.1007/s11166-011-9114-4 · 1.53 Impact Factor
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    • "pre-commitment is available. 9 Expanding on these findings, Hey and Lotito (2009) propose an experiment where both behaviour and preferences are investigated. They use data on tree evaluations together with data on choices and find evidence that the strategy method, as opposed to that of backward induction, is followed by the majority of subjects. "
    [Show abstract] [Hide abstract]
    ABSTRACT: Potentially dynamically-inconsistent individuals create particular problems for economics, as their behaviour depends upon whether and how they attempt to resolve their potential inconsistency. This paper reports on the results of a new experiment designed to help us distinguish between the different types that may exist. We classify people into four types: myopic, naïve, resolute and sophisticated. We implement a new and simple experimental design in which subjects are asked to take two sequential decisions (interspersed by a random move by Nature) concerning the allocation of a given sum of money. The resulting data enables us to classify the subjects. We find that the majority are resolute, a significant few are sophisticated, rather few are naïve and similarly few are myopic. KeywordsDynamic inconsistency–Sequential choice–Myopic–Naïve–Resolute–Sophisticated
    Journal of Risk and Uncertainty 01/2011; 42(2):85-123. · 1.53 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Potentially dynamically-inconsistent individuals create particular problems for economics, as their behaviour depends upon whether and how they attempt to resolve their potential inconsistency. This paper reports on the results of a new experiment designed to help us distinguish between the different types that may exist. We classify people into four types: myopic, naive, resolute and sophisticated. We implement a new and simple experimental design in which subjects are asked to take two sequential decisions (interspersed by a random move by Nature) concerning the allocation of a given sum of money. The resulting data enables us to classify the subjects. We find that the majority are resolute, a significant minority are sophisticated and rather few are naive or myopic.
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