Money Pumps

Abstract

After maintaining in (Sobel 1997) that certain cyclical preferences can be reasonable, the following questions were tabled: “in what circumstances and under what assumptions … these … preferences of George's would turn him into a ”money pump,” and in what circumstances and under what assumptions they would not do that.” (47) Two pumps afford answers. George, who is sufficiently reasonable and well-informed to use backward induction, has, for this reason, nothing to fear from the first pump, but the second, of a nonstandard design by Wlodek Rabinowicz, ruins him just because he is subject to the constraints of backward induction. Could he be helped by extending his options from actions in a single round, to courses of actions starting in that round? Possibly not. He would be safe if he were capable of resolute choices of couses of action. Even so, he is in trouble through no fault of his, if, as I think, not having that capacity, though a misfortune, is not a fault.

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