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
    • "Which discount factor matters for the vaccination decision depends on how individuals try to implement plans. Resolute individuals (Hey and Lotito (2009)), for instance, stick to their plans so that vaccination behavior of resolute but intertemporally biased individuals is expected not to differ from vaccination behavior of exponential discounters. This also applies to sophisticated individuals who are aware of their time inconsistency provided they are able to commit their future self to their current self's immunization plan. "
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    ABSTRACT: Invoking Yaari's dual theory, we develop a model of individual vaccination decisions that incorporates quasi-hyperbolic discounting, risk aversion, and information. We test the resulting hypotheses for the flu season 2010/2011 using a representative German data set. We find a significant impact of time preferences on immunization decisions. The impact of the discount factor is significantly negative for exponential discounters. While present-biased individuals' demand for vaccination is not statistically different from the one of exponential discounters, future-biased individuals have a significantly higher probability to vaccinate. Stratification by gender reveals that these effects are entirely driven by men. That is, time preferences have no explanatory power for the vaccination decisions of women. This also applies to risk aversion, where more risk aversion implies a significantly higher probability to vaccinate for men but not women. All information measures turn out significant. Well-informed individuals have a much higher propensity to vaccinate than poorly informed individuals. If policy makers aim at improving immunization rates, then our results suggest that public policy should concentrate on providing easily accessible and concise information on the flu and the flu shot. Our results on time preferences and risk preferences imply a rather inactive role for public policy. Copyright © 2015 John Wiley & Sons, Ltd.
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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.
    Full-text · Article · Apr 2011 · Journal of Risk and Uncertainty
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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
    Full-text · Article · Jan 2011 · Journal of Risk and Uncertainty
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