Publication Date: February 2017
We propose nonparametric deﬁnitions of absolute and comparative naivete. These deﬁnitions leverage ex-ante choice of menu to identify predictions of future behavior and ex-post (random) choices from menus to identify actual behavior. The main advantage of our deﬁnitions is their independence from any assumed functional form for the utility function representing behavior. An individual is sophisticated if she is indiﬀerent between choosing from a menu ex-post or committing to the actual distribution of choices from that menu ex-ante. 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. Finally, we discuss the implications of general naivete for welfare and the design of commitment devices.
Naive, Sophisticated, Time inconsistent, Comparative staticsSee CFDP Version(s): CFDP 2074R
See CFP: CFP1659