Intertemporal Decisions Research Articles

Don't Ignore Inflation Ignorance: On the Relevance of Money Illusion for Economic Modeling

Money illusion refers to the tendency to evaluate economic transactions in nominal rather than real terms. One manifestation of this phenomenon is the tendency to neglect future inflation in intertemporal investment decisions. Empirical evidence for this “inflation ignorance” is hard to establish due to the host of factors that simultaneously change with the inflation rate. We avoid these identification issues by conducting a controlled and fully incentivized investment experiment. We measure a substantial degree of money illusion and show that it is not driven by lacking diligence, arithmetic problems, or misunderstandings of inflation. Instead, participants seem to anchor subconsciously to nominal returns, even though they are unambiguously incentivized to base their decisions on real returns only. Our findings contribute towards understanding various anomalies on the individual and market level, such as insufficient savings efforts or equity mispricing.

Delay discounting in dyads and small groups: Group leadership, status information, and actor-partner interdependence

Delay discounting is usually studied at the individual level, though there exist many situations where dyads and small groups have to make intertemporal decisions about delayed rewards. In the current study, we investigated the social dynamics in collective intertemporal decision making by experimentally manipulating group leadership and status differentials among dyad and group members. Participants in all experiments completed three phases of an intertemporal decision-making task: an individual pre-collaboration phase, a collaboration phase in dyads or small groups, and an individual post-collaboration phase. In Experiments 1 and 2, small groups of three made collective decisions during the collaboration phase, with one member of the group being assigned a leadership position. Groups believed that leaders were chosen either randomly (Experiment 1) or systematically based on the normativity of the leader's pre-collaboration decisions (Experiment 2). Leaders exerted a stronger influence on group preferences than non-leaders, but only when participants believed leaders were chosen systematically. Experiment 3 then demonstrated that lower-status dyad members were more affected by a collaborative experience compared to higher-status members, suggesting that social influence on delay discounting depends on the relative status between dyad and group members.

The effect of language on economic behavior: Examining the causal link between future tense and time preference in the lab

Since Chen (2013), a fast-growing body of literature has documented abundant supporting evidence for the linguistic-savings hypothesis. Despite this influx of research, direct causal evidence is limited. In this study, we take advantage of a unique linguistic feature of the Chinese language: speakers can freely choose whether or not to use the future tense when referring to a future event. This flexibility allows us to unobtrusively manipulate the use of “will” in the description of the rewards in a standard time preference task to cleanly examine its effect on intertemporal decisions. However, our results do not lend further empirical support for the linguistic-savings hypothesis.

Toward an understanding of the development of time preferences: Evidence from field experiments

Time preferences have been correlated with a range of life outcomes, yet little is known about their early development. We conduct a field experiment to elicit time preferences of over 1200 children ages 3–12, who make several intertemporal decisions. To shed light on how such primitives form, we explore various channels that might affect time preferences, from background characteristics to the causal impact of an early schooling program that we developed and operated. Our results suggest that time preferences evolve substantially during this period, with younger children displaying more impatience than older children. We also find a strong association with race: black children, relative to white or Hispanic children, are more impatient. Finally, assignment to different schooling opportunities is not significantly associated with child time preferences.

The Intergenerational Impact of China's New Rural Pension Scheme

The Intergenerational Impact of China's New Rural Pension Scheme

Do Time Preferences Matter in Intertemporal Consumption and Portfolio Decisions?

Abstract We study the intertemporal consumption and portfolio rules in the model with the general hyperbolic absolute risk aversion (HARA) utility. The equivalent approximation approach is employed to obtain the Hamilton-Jacobi-Bellman (HJB) equations, and a remarkable property is shown: portfolio rules are independent of the discount function. Moreover, both the consumption and portfolio rates are non-increasing functions of wealth. Particularly illustrative cases examined in detail are the models with the most adopted discount functions, including exponential discounting and hyperbolic discounting. Explicit solutions for intertemporal decisions are found for these special cases, revealing that individual’s time preferences affect the consumption rules only. Moreover, the time-consistent consumption rate under hyperbolic discounting is larger than its counterpart under exponential discounting.

The study of intertemporal decision-making of mild cognitive impairment patients

Objective To explore whether the ability of intertemporal choice is impaired in patients with mild cognitive impairment. Methods Twenty-seven patients with mild cognitive impairment and thirty-five healthy controls were recruited in this study.All subjects completed the delay-discounting task and the delayed discount rate (K value) was used to evaluate the patients' decision-making ability. Results (1) The delay discount rate(median=0.0256, P25=0.016, P75=0.100)in mild cognitive impairment patients was higher than that of healthy cotrols(median =0.006, P25=0.0025, P75=0.016). There was significant difference in K-value between the two groups(Z=-2.988, P<0.01). (2) Spearman correlation analysis showed that the significant negatively correlation between K-value and digital span forward test (r=-0.389, P=0.045) in mild cognitive impairment group. Conclusion The ability of intertemporal choices is impaired in patients with mild cognitive impairment and negatively correlated with attention function. Key words: Mild cognitive impairment; Intertemporal choice; Delay-discount

Effects of High Frequency Repetitive Transcranial Magnetic Stimulation (HF-rTMS) on Delay Discounting in Major Depressive Disorder

Background Major depressive disorder (MDD) is marked by core depressive emotional and physical symptoms and is also accompanied by difficulties in reward processing. A reduction of reward anticipation, along with diminishment in anticipation predicting reduced motivation for rewards has been documented in the acute phase. Cognitive neuroscience studies suggest that non-invasive brain stimulation techniques can be used to modulate processes involved in decision making, especially when stimulation is applied over the dorsolateral prefrontal cortex (dlPFC). However, studies assessing its effects on intertemporal decision-making in clinical populations are scarce. Methods By using high frequency repetitive transcranial magnetic stimulation (HF-rTMS) we investigated the potential impact of one and 20 sessions on temporal impulsivity, severity of depressive symptoms, impulsivity and personality factors of depressed individuals. Twenty patients meeting Diagnostic and Statistical Manual of Mental Disorders (DSM-IV) criteria for unipolar depression and meeting at least stage II treatment resistant criteria underwent 20 HF-rTMS stimulation sessions. Results In odds with prior investigations, data analysis revealed a lack of significant (or even a deleterious) effect of HF-rTMS sessions over the left dlPFC on discounting rates of depressed individuals. Treatment was well-tolerated and resulted in significant improvement on cognitive impulsivity and depressive symptoms. Hypothesis concerning the results were discussed. Conclusion Despite limitations involved in this study, results allow preliminary evaluation of rTMS effect on temporal impulsivity in depressed individuals, providing substrate for further research.

Concreteness and emotional valence of episodic future thinking (EFT) independently affect the dynamics of intertemporal decisions.

During intertemporal decisions, the value of future rewards decreases as a function of the delay of its receipt (temporal discounting, TD). Since high discount rates have been associated with a series of problematic behaviours and clinical conditions, current research has focused on possible modulators of TD. Specifically, a reduction of individual discount rates has been shown during episodic future thinking (EFT), wherein time intervals are anchored to personal future events. However, it is not entirely clear whether this effect is mediated by a change in the representation of future events (i.e., from abstract to concrete) or by a positive-emotion modulation. Here, we investigated this issue by manipulating the valence of the EFT (i.e., using negative, neutral and positive episodic tags), and by collecting explicit and implicit measures of behaviour. The results showed a significant reduction of TD in all the three emotional conditions compared to the baseline, with differences among them, thus suggesting the existence of a cumulative effect of the concreteness and affective components of the EFT. The analyses of implicit measures additionally revealed that this effect was mediated by a simultaneous increase/decrease of attraction toward the delayed/immediate alternative. Finally, these effects appeared to be modulated by participants’ baseline discounting preferences. These findings provide important insights on clinical applications in reward-related disorders.

Modulating Activity in the Prefrontal Cortex Changes Intertemporal Choice for Loss: A Transcranial Direct Current Stimulation Study.

Intertemporal choice refers to decisions involving tradeoffs between costs and benefits occurring at different times. Studies have found that weighting the time and benefits during decision-making involves a complex neural network that includes the dorsolateral prefrontal cortex (DLPFC). However, in contrast to literature regarding intertemporal choice for gains, studies have not provided causal evidence that the DLPFC is involved in intertemporal choice for losses. We examined whether bifrontal transcranial direct current stimulation (tDCS) applied over the right and left prefrontal cortex can alter the balance of intertemporal preference in the loss condition. A total of 60 participants performed delay discounting tasks for losses while receiving either right anodal/left cathodal, left anodal/right cathodal, or sham stimulation. The results showed that participants tended to choose larger delayed losses after receiving left anodal/right cathodal tDCS. Left anodal/right cathodal tDCS significantly decreased the discounting rate compared with the sham stimulation. These findings confirm that DLPFC activity is critical during intertemporal decision-making for losses.

Mapping Time: How the Spatial Representation of Time Influences Intertemporal Choices

Cognitive linguistic studies have found that people perceive time to be intertwined with space. Western consumers, in particular, visualize time on a horizontal spatial axis, with past events on the left and future events on the right. Underexplored, however, is whether and how space-time associations influence future time-related judgments and decisions. For instance, can spatial location cues affect intertemporal decisions? Integrating cognitive linguistics, time psychology, and intertemporal choice, the authors demonstrate across five studies that when choices are displayed horizontally (vs. vertically), consumers more steeply discount future outcomes. Furthermore, this effect is serially mediated by attention to time and anticipated duration estimates. Specifically, the authors propose and demonstrate that horizontal (vs. vertical) temporal displays enhance the amount of attention devoted to considering the time delay and lead consumers to overestimate how long it will take to receive benefits. This research has important implications for consumers who want to forgo immediate gratification and for firms that need to manage consumers’ time perceptions.

Decision and time from a Humean point of view

Until recently, little attention has been paid to the consequences of Hume’s theory of action for intertemporal decision. Yet in view of the recurring discussion concerning situations of conflicting choice between a close and a remote objective, which runs from Book 2 of the Treatise, to the second Enquiry, to the Dissertation, intertemporal decision appears, at least in part, to be an outcome of the role of the natural relation of contiguity in the formation of the structure of desires, and thus different from the structure of pleasure. This paper shows, and expresses formally, that Hume’s approach provides alternative conditions which explain time-consistency on the one hand, and dynamic time-inconsistency on the other, when the link between contiguity and the ’violence’ of the passions is taken into account. The possibility of time-inconsistency is acknowledged by Hume as giving rise to general aversion, therefore constitutes a key argument in explaining the origin of government.

Sense of control matters: A long spatial distance leads to a short-term investment preference

AbstractIncreasingly, we can invest in projects that are distributed around the world through online investment platforms. Will the spatial distance between these projects and ourselves affect our investment preferences? The present research aims to experimentally examine the impact of spatial distance on intertemporal preferences for investment returns and to explore the underlying mediating effect of the sense of control. Three studies were devised to address this topic. Studies 1 and 2 used two methods to manipulate the spatial distance between the location of investment projects and the location of investors. Participants were more impatient with investment returns when the investment project was located farther away. In other words, they preferred lower but earlier returns in intertemporal choice. Moreover, participants’ sense of control over the investment project mediated the relationship between spatial distance and intertemporal preferences. Using a priming method, Study 3 showed that participants’ impatience for investment returns in investments with different spatial distances could be remedied by giving them generalized control. Theoretical implications for studies regarding psychological distance and intertemporal decision making and practical implications for investments are discussed.

Optogenetic dissection of basolateral amygdala contributions to intertemporal choice in young and aged rats.

Across species, aging is associated with an increased ability to choose delayed over immediate gratification. These experiments used young and aged rats to test the role of the basolateral amygdala (BLA) in intertemporal decision making. An optogenetic approach was used to inactivate the BLA in young and aged rats at discrete time points during choices between levers that yielded a small, immediate vs. a large, delayed food reward. BLA inactivation just prior to decisions attenuated impulsive choice in both young and aged rats. In contrast, inactivation during receipt of the small, immediate reward increased impulsive choice in young rats but had no effect in aged rats. BLA inactivation during the delay or intertrial interval had no effect at either age. These data demonstrate that the BLA plays multiple, temporally distinct roles during intertemporal choice, and show that the contribution of BLA to choice behavior changes across the lifespan.

Equity and Time Consistency for Intertemporal Social Decisions

In this paper, we study intertemporal social welfare evaluations when agents’ discount factors may be different. We first show that there exists a conflict between efficiency, equity, and time consistency, even if all agents share the same discount factor. We argue that this impossibility result is due to a tension between equity and time consistency regarding how the past should be taken into account when evaluating intertemporal distributions. Then, we instead introduce weaker requirements of time consistency and equity. On the one hand, using the weaker version of time consistency, we characterize a maximin social welfare ordering which completely ignores the past information. On the other hand, using the weaker form of equity, we characterize another maximin social welfare ordering which completely respects the past information.

Compared to Dematerialized Money, Cash Increases Impatience in Intertemporal Choice

When it comes to trading time for money (or vice versa), people tend to be impatient and myopic. Often dramatically so. For illustration, half of people would rather collect $15 now than $30 in 3 months. This willingness to forego 50% of the reward to skip a 3‐month wait corresponds to an annual discount rate of 277%. This article investigates how money's physical form biases intertemporal choice. We ask, what happens to (im)patience (i.e., discount rates) when time is traded against cash rather than against an equivalent sum of dematerialized money? We find that intertemporal decisions pitting time against cash (rather than against dematerialized money) increase impatience. The underlying mechanism relates to the pain of parting from money. Letting go of cash (dematerialized money) we can have now is psychologically more (less) painful, which in turn reduces (increases) our willingness to wait for larger‐later payoffs. Importantly, heightening prevention focus (i.e., concerns for safety and security) moderates this bias. The article concludes by discussing the implications of the research, particularly for the psychology of saving behavior.

Automatic biases in intertemporal choice.

Dual process theories of intertemporal decision making propose that decision makers automatically favor immediate rewards. In this paper, we use a drift diffusion model to implement these theories, and empirically investigate the role of their proposed automatic biases. Our model permits automatic biases in the response process, in the form of a shifted starting point, as well as automatic biases in the evaluation process, in the form of an additive drift rate intercept. We fit our model to individual-level choice and response time data, and find that automatic biases (as measured though the starting point and drift rate intercept in our model) are prevalent in intertemporal choice, but that the type, magnitude, and direction of these biases vary greatly across individuals. Our results pose new challenges for theories of intertemporal choice behavior.

Can asymmetric subjective opportunity cost effect explain impatience in intertemporal choice? A replication study

AbstractIn “The value of nothing: asymmetric attention to opportunity costs drives intertemporal decision making” Read, Olivola and Hardisty (2017) proposed an asymmetric subjective opportunity cost (ASOC) effect to explain and predict why impatience can be detected in intertemporal choice. This work deserves to be replicated and extended for its novel and potentially important findings. The present study aimed to examine the reliability and robustness of the evidence presented by Read et al. by conducting precise replications of their key findings in Study 1. The ASOC effect (Read, et al., 2017) was important for expanding its application and reported to be typically stronger when baseline larger-but-later option (LL) and smaller-but-sooner option (SS) preferences were closer to 50% in the authors’ original condition. Therefore, the present study also aimed to replicate and test the ASOC effect when baseline LL preferences were higher or lower than those in the original condition. We intended to set two additional conditions wherein either LL or SS is more obviously favored (i.e., baseline LL preferences were higher or lower than those in the original condition) by respectively applying the common difference effect (Kirby &amp; Herrnstein, 1995) and the unit effect (Burson, Larrick &amp; Lynch Jr., 2009; Pandelaere, Briers &amp; Lembregts, 2011). Having successfully generated two more obviously favored conditions, the ASOC effect was replicated and confirmed under the original condition and one additional condition wherein SS was more obviously favored. However, the ASOC effect was not detected under the other additional condition wherein LL was more obviously favored. The implications of these findings were discussed.

Corrigendum to: ‘Rate maximization and hyperbolic discounting in human experiential intertemporal decision making’ by Maayke Suzanne Seinstra, Manuela Sellitto and Tobias Kalenscher

Corrigendum to: ‘Rate maximization and hyperbolic discounting in human experiential intertemporal decision making’ by Maayke Suzanne Seinstra, Manuela Sellitto and Tobias Kalenscher

Amount and time exert independent influences on intertemporal choice.

Intertemporal choices involve trade-offs between the value of rewards and the delay before those rewards are experienced. Canonical intertemporal choice models such as hyperbolic discounting assume that reward amount and time until delivery are integrated within each option prior to comparison1,2. An alternative view posits that intertemporal choice reflects attribute-wise processes in which amount and time attributes are compared separately3-6. Here, we use multi-attribute drift diffusion modelling (DDM) to show that attribute-wise comparison represents the choice process better than option-wise comparison for intertemporal choice in a young adult population. We find that, while accumulation rates for amount and time information are uncorrelated, the difference between those rates predicts individual differences in patience. Moreover, patient individuals incorporate amount earlier than time into the decision process. Using eye tracking, we link these modelling results to attention, showing that patience results from a rapid, attribute-wise process that prioritizes amount over time information. Thus, we find converging evidence that distinct evaluation processes for amount and time determine intertemporal financial choices. Because intertemporal decisions in the lab have been linked to failures of patience ranging from insufficient saving to addiction7-13, understanding individual differences in the choice process is important for developing more effective interventions.