Who Are I: Time Inconsistency and Intrapersonal Conflict and Reconciliation

TL;DR

This paper reviews the development of intra-personal equilibrium models addressing time inconsistency in dynamic decision-making, highlighting classical results and recent advances in continuous-time settings.

Contribution

It provides a comprehensive review of the evolution and recent progress in modeling intra-personal equilibrium for time-inconsistent choices in continuous time.

Findings

Historical development of intra-personal equilibrium models

Recent advances in continuous-time formulations

Key classical and modern results summarized

Abstract

Time inconsistency is prevalent in dynamic choice problems: a plan of actions to be taken in the future that is optimal for an agent today may not be optimal for the same agent in the future. If the agent is aware of this intra-personal conflict but unable to commit herself in the future to following the optimal plan today, the rational strategy for her today is to reconcile with her future selves, namely to correctly anticipate her actions in the future and then act today accordingly. Such a strategy is named intra-personal equilibrium and has been studied since as early as in the 1950s. A rigorous treatment in continuous-time settings, however, had not been available until a decade ago. Since then, the study on intra-personal equilibrium for time-inconsistent problems in continuous time has grown rapidly. In this chapter, we review the classical results and some recent development in this literature.