Abstract
Impulsivity has been defined as choosing the smaller more immediate reward over a larger more delayed reward. The purpose of this research was to gain a deeper understanding of the mental processes involved in the decision making. We examined participants’ rates of delay discounting and probability discounting to determine their correlation with time-probability trade-offs. To establish the time-probability trade-off rate, participants adjusted a risky, immediate payoff to a delayed, certain payoff. In effect, this yielded a probability equivalent of waiting time. We found a strong, positive correlation between delay discount rates and the time-probability trade-offs. This means that impulsive people have a compulsion for immediate gratification, independent of whether the immediate reward is certain or uncertain. Thus, they seem not to be concerned with risk but rather with time.
Highlights
Perhaps the two most fundamental principles in financial decision making are the time value of money and the trade-off between risk and return
Our research hypothesis is the following: Impulsive people choose smaller, immediate reward over larger, delayed ones. They have a need for immediate gratification, even if the immediate reward is uncertain. If this hypothesis is correct, there will be a positive correlation between the delay discount rate and the time-probability trade-off
For small amounts the delay discount rate is significantly positively correlated with the steepness of probability discounting
Summary
Perhaps the two most fundamental principles in financial decision making are the time value of money and the trade-off between risk and return It is not so surprising, that in the laboratory, numerous experiments have attempted to measure how people make the trade-offs between reward and reward later and trade-offs between reward that will definitely be received and reward that might or might not happen (for a review see: Green and Myerson, 2004, 2010; McKerchar and Renda, 2012). Probability discounting is the decrease in the subjective value of an outcome as a function of its likelihood: The greater the risk aversion, the higher the discount rate. Discount rates are related to the amount of the outcome. Green et al (1997) found a magnitude effect for temporal discounting; the discount rate decreased as the amount of the delayed payoff increased
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
