Friday, 31 May, 2024 | 14:00 | Room 402 | Micro Theory Research Seminar

Nikhil Vellodi (Paris School of Economics) "A Theory of Self-Prospection"

Nikhil Vellodi, Ph.D.

Paris School of Economics, France

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Authors: Nikhil Vellodi, Polina Borisova

Abstract: A present-biased decision maker (DM) faces a two-armed bandit problem whose risky arm generates random payoffs at exponentially distributed times. The DM cannot perfectly observe payoffs but receives informative feedback. Our main finding is that, in the unique stationary Markov perfect equilibrium of the multi-self game, positive feedback supports greater equilibrium welfare than both negative and transparent feedback. By inducing an upward trend in self-beliefs while actively experimenting, positive feedback encourages the DM to engage in self-prospection --- imagining future goals and outcomes when seeking motivation in the present.  We relate our results to findings in psychology promoting the motivational effects of positive feedback, as well as more recent findings regarding self-prospection theory.

JEL Classification: D83, D91, C73
Keywords: Present-bias, strategic experimentation, motivational feedback

Full Text: A Theory of Self-Prospection