I propose a dual-self model in which two selves have conflicting preferences over the action to be taken by an agent. Departing from existing dual-self models, the two selves are treated symmetrically. They have identical instantaneous utility, and only differ in their time preference. The default action of the agent is modelled as the outcome of a Tullock contest among the selves, where the self who wins chooses their preferred action. Viewing the outcome of this contest as the point of disagreement, the selves are allowed to negotiate to a mutually preferred outcome, and this negotiation is modelled as a Nash bargaining problem. I show that multiple well documented ‘behavioural’ deviations from standard utility maximizing behaviour can be generated from this model, including time inconsistent behaviour such as diminishing impatience, as well as violations of independence of irrelevant alternatives in choice problems. Notably the preference reversals from time inconsistency are ‘smooth’, as opposed to the singular reversal in quasi-hyperbolic discounting, the standard model used in the literature. Further, the model implies correlation of these deviations due to their dependence on the same parameters. Finally, this approach provides insight on evaluating the welfare effects of various interventions.
Dynamic Preference “Reversals” and Time Inconsistency
