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School of Economics and Finance

No. 954: Dynamic Inconsistency, Commitment, and Welfare in Strategic Settings

Asen Ivanov , School of Economics and Finance, Queen Mary University London

June 23, 2023

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Abstract

The choices of a dynamically inconsistent individual depend on whether she commits to consumption ahead of time or chooses consumption in the moment. In individual-choice settings, it is normatively ambiguous whether such an individual’s choices with commitment or in the moment are “better”. This impasse can be overcome in settings in which dynamically inconsistent individuals interact strategically. Policy implications are discussed.

J.E.L classification codes: D60, D90

Keywords:dynamic inconsistency, commitment, welfare

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