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The conflict between naive and sophisticated choice as a form of the ‘liberal paradox’

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Abstract

Pareto-inefficient perfect equilibria can be represented by the liberal paradox approach of Sen, appropriately reconfigured to model intertemporal decision-making by an individual. We show that the preference profile used by Grout (1982) to construct a case in which naive choice Pareto-dominates sophisticated choice can be so represented, if tastes change and if the individual can make decisions at time t, which restrict or determine opportunities available in period t + 1 and beyond. This ability to make a decision that binds oneself in the future is a form of ‘rights assignment’. We also show how two resolutions of the liberal paradox work out in the individual decision framework.

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Gigliotti, G.A. The conflict between naive and sophisticated choice as a form of the ‘liberal paradox’. Theor Decis 24, 35–42 (1988). https://doi.org/10.1007/BF00137221

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