Time Inconsistency and Self-Control Optimization Problems: Progress and Challenges

Abstract

Time inconsistency has been an important issue in many stochastic decision problems arisen in real life and financial decision making, especially in the dynamic investment area. When a stochastic decision problem is time inconsistent, the decision maker would be puzzled by his/her conflicting decisions “optimally” derived from his/her time-varying preferences at different time instants. In the literature, the time inconsistent problem is also called the self-control problem, as the decision maker needs to exert proper self-control to resist present temptation and then achieve a better long-term performance. Different approaches dealing with time inconsistency in the literature are reviewed in this paper. After that, the open questions and challenges are also discussed.