A note on the welfare of a sophisticated time-inconsistent decision-maker

Arbeitspapier

I examine the circumstances under which a sophisticated time-inconsistent decisionmaker (i) will not or (ii) need not severely miscoordinate her behavior across time, in the sense of following a course of action which fails to be Pareto-optimal for the sequence of temporal selves of the individual (Laibson [1994] and O'Donoghue and Rabin [1999] provide prominent instances of such miscoordination). Studying the standard solution concept for this case - Strotz-Pollak equilibrium - in general decision problems with perfect information, I establish two results: first, for finite-horizon problems without indifference, essential consistency (Hammond [1976]) is sufficient for choice to be Pareto-optimal. Second, if the decision problem satisfies a certain history-independence property, whenever an equilibrium outcome fails to be Pareto-optimal, it is Pareto-dominated by another equilibrium outcome, leading to an existence result for a Pareto-optimal solution.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WZB Discussion Paper ; No. SP II 2015-201

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Consumer Economics: Theory ; Welfare Economics: General ; Conflict; Conflict Resolution; Alliances; Revolutions ; Micro-Based Behavioral Economics: General‡
• Subject: time-inconsistency ; multi-selves approach ; Strotz-Pollak equilibrium ; welfare ; Pareto-optimality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kodritsch, Sebastian
• Event: Veröffentlichung
• (who): Wissenschaftszentrum Berlin für Sozialforschung (WZB)
• (where): Berlin
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/107133
• Last update: 10.03.2025, 11:45 AM CET