A Markov Decision Process with Awareness and Present Bias in Decision-Making

We propose a Markov Decision Process Model that blends ideas from Psychological research and Economics to study decision-making in individuals with self-control problems. We have borrowed a dual-process of decision-making with self-awareness from Psychological research, and we introduce present bias in inter-temporal preferences, a phenomenon widely explored in Economics. We allow for both an exogenous and endogenous, state-dependent, present bias in inter-temporal decision-making and explore, by means of numerical simulations, the consequences on well-being emerging from the solution of the model. We show that, over time, self-awareness may mitigate present bias and suboptimal choice behaviour.

Automated summary

We propose a Markov Decision Process Model that combines ideas from Psychological research and Economics to study decision-making in people with self-control issues. From Psychological research, we borrow a dual-process of decision-making with self-awareness, and from Economics, we introduce present bias in inter-temporal preferences. We examine both exogenous and endogenous, state-dependent, present bias in inter-temporal decision-making, and use numerical simulations to explore the impact on well-being. Our findings suggest that self-awareness can alleviate present bias and suboptimal choice behavior over time.