Theoretical Economics, Volume 2, Number 3 (October 2007)

Theoretical Economics 2 (2007), 231–259


Cold feet

Larry G. Epstein, Igor Kopylov

Abstract


Individuals often lose confidence in their prospects as they approach the `moment of truth.' An axiomatic model of such individuals is provided. The model adapts and extends (by relaxing the Independence axiom) Gul and Pesendorfer's model of temptation and self-control to capture an individual who changes her beliefs so as to become more pessimistic as payoff time approaches. In a variation of the model, the individual becomes more optimistic at an ex post stage in order to feel better about her available options.

Keywords: Pessimism, optimism, cold feet, temptation, self-control, moment of truth, temporal proximity, confidence

JEL classification: D80, D81

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