Misbehaving: The Making of Behavioral Economics

by Richard H. Thaler

Even in this highly simplified version of the model, it is possible to illustrate many interesting subtleties about intertemporal choice; these subtleties depend in part on whether people are aware of their self-control problems. When David Laibson wrote his first paper on this subject he assumed that agents were “sophisticated,” meaning that they knew they had this pattern of time preferences. As a graduate student trying to get a job with a paper on behavioral economic theory (a category that was then essentially unknown), it was clever of David to characterize the model this way. David’s agents were pure Econs except for one detail; they had problematic time preferences. When O’Donoghue and Rabin decided to join the party they considered a more radical approach, in which agents have present-biased preferences but are unaware of their affliction. Such agents are considered “naïve.”