Temporal Discounting of Future Risks

Abstract

This chapter discusses how temporal discounting might lead a consumer to choose a smaller, more immediate reward over a larger, delayed reward because the present value of the delayed reward is discounted. Time discounting models, such as exponential and hyperbolic pattern discounting, are useful in explaining people’s intertemporal preferences and choices. Neuroscience-based models combine the cognitive models with quantitative measures of temporal discounting and help clarify why a particular brain region may dominate choice behavior in one situation but not in others. Previous empirical research and our experimental results show evidence of domain differences and individual differences in temporal discounting. Temporal discounting models are useful in explaining individuals’ addictive and unhealthy behaviors. The concept of temporal discounting can be used to explain consumers’ daily decisions—such as saving for retirement, recycling, and purchasing environmentally friendly products—and has important marketing and policy implications.