Resolute Choice in Interaction: A Welfare Comparison

In this paper we extend the model of Resolute Choice to a situation of interaction and compare it with the Sophisticated-subgame perfect equilibrium and the Myopic Choice models in terms of welfare implications. The framework adopted is a non-cooperative game in which two players with different preference orderings over outcomes move sequentially. We consider the combinations of the players’ preference structures which generate the different plans and find games where there exist either one or two outcomes Pareto-dominant over Sophisticated Choice. On the one hand, this allows us to drop myopic behaviour as an explanation for choosing an outcome Pareto dominant over the Sophisticated-subgame perfect equilibrium model; on the other, it opens the question of extending the general definition of Resolute Choice as Pareto dominance, which allows discriminating choice between the two different Pareto dominant outcomes