January, 12th 2022

Claudio Kretz

Chair of Economic Theory

Abstract:

I observe that (i) it is a well-established empirical fact that many individuals are dynamically inconsistent in that they exhibit tastes changing over time; (ii) plans play no particular role in most economic models (other than being perfect predictors of future behavior under rational expectations). Yet when dynamically inconsistent individuals are averse to deviating from previously made plans and expect so, this presents them with a strategic opportunity ex ante to control their future selves. I develop a model of optimal endogenous planning and identify three intuitive axioms that characterize when dynamic choice behavior is consistent with a decision maker who is planning to self-control.