Abstract
We examine preferences for sequences of delayed monetary gains. In the experimental literature, two prominent models have been advanced as psychological descriptions of preferences for sequences. In one model, the instantaneous utilities of the outcomes in a sequence are discounted as a function of their delays, and assembled into a discounted utility of the sequence. In the other model, the accumulated utility of the outcomes in a sequence is considered along with utility or disutility from improvement in outcome utilities and utility or disutility from the spreading of outcome utilities. Drawing on three threads of evidence concerning preferences for sequences of monetary gains, we propose that the accumulated utility of the outcomes in a sequence is traded off against the duration of utility accumulation. In our first experiment, aggregate choice behavior provides qualitative support for the tradeoff model. In three subsequent experiments, one of which incentivized, disaggregate choice behavior provides quantitative support for the tradeoff model in Bayesian model contests. One thread of evidence motivating the tradeoff model is that, when, in the choice between two single dated outcomes, it is conveyed that receiving less sooner means receiving nothing later, preference for receiving more later increases, but when it is conveyed that receiving more later means receiving nothing sooner, preference is left unchanged. Our results show that this asymmetric hidden-zero effect is indeed driven by those supporting the tradeoff model. The tradeoff model also accommodates all remaining evidence on preferences for sequences of monetary gains.
Highlights
We tested the models in aggregate choice behavior, basically assuming that the average participants is representative of all participants; in this experiment, we recognize that the “representative agent” may not exist, or that the average participant is perhaps representative of many, but not all
Most switches are from Tradeoff Model (TM) to Random-choice model (RM), but that is because there are so many more supporters of TM; it is, a minority that switches from TM to RM, just as we see minorities switching from Discounted Instantaneous Utility Model (DIUM) to RM, and from SMZ to RM
Because DIUM is similar to the Net Present Value (NPV) model, which is the standard of economic rationality, one might infer that decisions were brought “closer to the economic model.”
Summary
Title and full bibliographic details are credited, a hyperlink and/or URL is given for the original metadata page and the content is not changed in any way. This article may not exactly replicate the authoritative document published in the APA journal. A note on versions: The version presented here may differ from the published version or, version of record, if you wish to cite this item you are advised to consult the publisher’s version. Please see the ‘permanent WRAP URL’ above for details on accessing the published version and note that access may require a subscription. Cumulative Weighing of Time in Intertemporal Tradeoffs 1 RUNNING HEAD: Cumulative Weighing of Time in Intertemporal Tradeoffs
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