Abstract
Decision makers with time-inconsistent preferences have been studied in great detail in recent decades. Addressing the dearth of literature on time inconsistency in a strategic context, our work provides the foundations for dealing with two-player games with naive and sophisticated players. We model the beliefs of various types explicitly, and then proceed to define a solution concept based on these belief hierarchies. Second-order beliefs of naive players turn out to be crucial, and lead to different solutions even in relatively simple games. We provide several examples, including models of bargaining and bank runs, showing the applicability of our framework.