A sophisticate solves the inter-temporal model recursively, while a naiff solves the intertemporal problem simultaneously from the point of view of the first period.

Question

Quizplus · Accepted Answer

A sophisticate understands and anticipates future behavior and preferences, solving the intertemporal model by considering how decisions made in one period affect outcomes in future periods recursively. In contrast, a naif does not fully account for future changes in preferences or circumstances, solving the problem as if all decisions were to be made at once, based on the initial period's perspective.

A Sophisticate Solves the Inter-Temporal Model Recursively, While a Naiff