Behavioural Characterizations of Naivete for Time-Inconsistent Preferences

David S Ahn; Ryota Iijima; Yves Le Yaouanq; Todd Sarver

doi:10.1093/restud/rdy076

Behavioural Characterizations of Naivete for Time-Inconsistent Preferences

The Review of Economic Studies ◽

10.1093/restud/rdy076 ◽

2019 ◽

Vol 86 (6) ◽

pp. 2319-2355 ◽

Cited By ~ 1

Author(s):

David S Ahn ◽

Ryota Iijima ◽

Yves Le Yaouanq ◽

Todd Sarver

Keyword(s):

Utility Function ◽

Functional Form ◽

Time Inconsistency ◽

Actual Distribution ◽

Mistaken Belief ◽

Actual Behaviour ◽

Ex Post ◽

Ex Ante ◽

Time Inconsistent ◽

Non Parametric

Abstract We propose non-parametric definitions of absolute and comparative naivete. These definitions leverage ex ante choice of menu to identify predictions of future behaviour and ex post (random) choices from menus to identify actual behaviour. The main advantage of our definitions is their independence from any assumed functional form for the utility function representing behaviour. An individual is sophisticated if she is indifferent ex ante between retaining the option to choose from a menu ex post or committing to her actual distribution of choices from that menu. She is naive if she prefers the flexibility in the menu, reflecting a mistaken belief that she will act more virtuously than she actually will. We propose two definitions of comparative naivete and explore the restrictions implied by our definitions for several prominent models of time inconsistency.

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Time Consistency in Regulatory Price Setting: An Australian Case Study

Review of Network Economics ◽

10.2202/1446-9022.1174 ◽

2009 ◽

Vol 8 (2) ◽

Cited By ~ 3

Author(s):

Henry Ergas

Keyword(s):

Time Consistency ◽

Price Setting ◽

Theoretical Literature ◽

Ex Post ◽

Ex Ante ◽

Australian Case ◽

Time Inconsistent

Time consistency refers to situations where a policy that is optimal ex ante proves not to be optimal ex post, creating the risk of opportunistic policy reversals. While the threat of such reversals has received widespread attention in the theoretical literature, testing whether policy is indeed time consistent is challenging. This paper implements such a test by comparing the depreciation profile established by the Australian telecommunications regulator at the outset of a regulatory period with the actual path of allowed recovery, and finds that the regulator acted in a time-inconsistent manner.

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Inequality of Opportunity: Theory and Practice of Measurement Using RLMS-HSE Microdata

Economic Policy ◽

10.18288/1994-5124-2020-1-64-89 ◽

2020 ◽

Vol 15 (1) ◽

pp. 64-89

Keyword(s):

Russian Federation ◽

Educational Status ◽

Measurement Procedure ◽

Theory And Practice ◽

Parametric Approach ◽

Ex Post ◽

Ex Ante ◽

The Russian Federation ◽

The Individual ◽

Non Parametric

This paper measures the opportunity inequality in the Russian Federation using a non-parametric approach. The paper uses data from the 20th round of the Russian Longitudinal Monitoring Survey — Higher School of Economics, which is a series of annual nation-wide representative surveys. Gender; type of township where the respondent was born; and educational status of the respondent’s parents were used as circumstance factors. The respondent’s income and earnings were chosen as the individual achievements. Calculations were made using two versions of the non-parametric approach: ex-ante, based on the “Min of Means” criterion, and ex-post, based on the “Mean of Mins” criterion. Several inequality indices, including Theil L index, Theil T index, and Atkinson’s A(1) and A(2) indices, were used in order to test the measurement reliability. According to the results obtained by our research team, in Russia, the contribution of opportunity inequality to earnings inequality is 18–24%, depending on the measurement procedure. The contribution of opportunity inequality to income inequality is somewhat less, 12–21%. The estimates obtained using the ex-post approach are higher than those using the ex-ante approach. Given that a limited number of circumstance factors were used in the research, it should be considered that the analysis performed allowed us to estimate the lower bound of the contribution of inequality of opportunities to the inequality of income and earnings in the Russian Federation.

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Rules without Commitment: Reputation and Incentives

The Review of Economic Studies ◽

10.1093/restud/rdab006 ◽

2021 ◽

Author(s):

Alessandro Dovis ◽

Rishabh Kirpalani

Keyword(s):

Optimal Design ◽

Large Class ◽

Policy Maker ◽

Time Inconsistency ◽

Optimal Rule ◽

Incentive Compatible ◽

Ex Post ◽

Ex Ante ◽

The One ◽

Good Behaviour

AbstractThis article studies the optimal design of rules in a dynamic model when there is a time inconsistency problem and uncertainty about whether the policy maker can commit to follow the rule ex post. The policy maker can either be a commitment type, which can always commit to follow rules, or an optimizing type, which sequentially decides whether to follow rules or not. This type is unobservable to private agents, who learn about it through the actions of the policy maker. Higher beliefs that the policy maker is the commitment type (i.e. the policy maker’s reputation) help promote good behaviour by private agents. We show that in a large class of economies, preserving uncertainty about the policy maker’s type is preferable from an ex ante perspective. If the initial reputation is not too high, the optimal rule is the strictest one that is incentive compatible for the optimizing type. We show that reputational considerations imply that the optimal rule is more lenient than the one that would arise in a static environment. Moreover, opaque rules are preferable to transparent ones if reputation is high enough.

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Dictating the Risk: Experimental Evidence on Giving in Risky Environments

The American Economic Review ◽

10.1257/aer.103.1.415 ◽

2013 ◽

Vol 103 (1) ◽

pp. 415-437 ◽

Cited By ~ 98

Author(s):

J. Michelle Brock ◽

Andreas Lange ◽

Erkut Y Ozbay

Keyword(s):

Utility Function ◽

Experimental Evidence ◽

Social Preferences ◽

Dictator Game ◽

Decision Makers ◽

Behavioral Patterns ◽

Dictator Games ◽

Ex Post ◽

Ex Ante ◽

Fairness Concerns

We study if and how social preferences extend to risky environments. We provide experimental evidence from different versions of dictator games with risky outcomes and establish that preferences that are exclusively based on ex post or on ex ante comparisons cannot generate the observed behavioral patterns. The more money decision-makers transfer in the standard dictator game, the more likely they are to equalize payoff chances under risk. Risk to the recipient does, however, generally decrease the transferred amount. Ultimately, a utility function with a combination of ex post and ex ante fairness concerns may best describe behavior. (JEL C72, D63, D64, D81)

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