On the benefits of time-inconsistent preferences

Why are time-inconsistent preferences widespread among decision makers? This paper provides a possible explanation by showing that time-inconsistent preferences could be beneficial for decision makers that work together. Time-inconsistent preferences - which are usually blamed for having detrimental effects - can thus be advantageous for the functioning of societies. We further show that decision makers with time-inconsistent preferences are better off if they are naive rather than sophisticated concerning their inconsistency. The results do not depend on the construction of contracts or punishment schemes. (c) 2020 Elsevier B.V. All rights reserved.

Automated summary

This paper suggests that time-inconsistent preferences could be beneficial for decision makers who work together and may have positive effects on societies. Decision makers with time-inconsistent preferences may be better off if they are naive rather than sophisticated about their inconsistency. The results are independent of the design of contracts or punishment schemes.