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I want it now!

I want it now!. Why discount rates for losses show reverse direction and reverse magnitude effects. David Hardisty, Kirstin Appelt, & Elke Weber Columbia University NSF SES-0345840 & SES-0820496 NIA 5R01AG027934-02 . Co-Authors. Kirstin Appelt. Elke Weber. Why study discounting?.

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I want it now!

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  1. I want it now! Why discount rates for losses show reverse direction and reverse magnitude effects David Hardisty, Kirstin Appelt, & Elke Weber Columbia University NSF SES-0345840 & SES-0820496 NIA 5R01AG027934-02

  2. Co-Authors Kirstin Appelt Elke Weber

  3. Why study discounting? • Insufficient savings (Thaler & Benartzi, 2004) • Unhealthy behavior (Bickel et al., 1999) • Depletion of environmental resources (Hendrickx et al., 2001) • All involve myopic tradeoffs between immediate and future costs and benefits • Discounting the future means we want gains now and losses later

  4. Discounting “Anomalies” • Sign effect: losses discounted less (Thaler, 1981; Hardisty & Weber, 2009) • Magnitude effect: large outcomes discounted less (Thaler, 1981) • Direction effect: more discounting when you delay than when you accelerate (Loewenstein, 1988; Weber et al., 2007)

  5. Reversals • Direction and magnitude effects are eliminated or reversed for losses (Benzion et al., 1989; Shelley, 1993) Unfortunately, forgotten. Why? • Don’t fit standard models • No process data

  6. Reconceptualizing Impatience • Impatience is “irrational” disutility of waiting • for gaining $100: I want it now • for losing $100: I want to get it out of the way now (Loewenstein, 1987) • Impatience is relatively insensitive to outcome magnitude (Benhabib et al., 2007) • This explains the sign effect, magnitude effect, direction effect, and their interactions

  7. Implications • For gains, impatience means more discounting • For losses, impatience means less discounting

  8. Explaining the Sign Effect • Get $1,000 now or $1,000 next year?+ uncertainty (Weber & Chapman, 2005; Epper et al., 2009)+ resource slack (Zauberman & Lynch, 2005)+ interest on investment (e.g., Franklin, 1784; Samuelson, 1937)+ impatience (Laibson, 1997) high discount rate • Pay $1,000 now or $1,000 next year?+++ other factors - impatience  lower discount rate

  9. Outline • Study 1: Sign, Magnitude, and Sign X Magnitude • Study 2: Sign, Direction, and Sign X Direction • Thought listings • National samples • Between-subjects designs

  10. Study 1 Sign X Magnitude

  11. Study 1: Participants • 199 US residents, recruited and run online • 76% female • Range of ages, education, & income • $8 compensation

  12. Study 1: Gain Scenario • Imagine there was a legitimate error on your back taxes in your favor, and you will immediately receive$10 [$10,000] from the government. • However, they are also giving you the option of receiving a different amount one year from now, instead. How much would the future amount need to be for you to choose it?

  13. Study 1: Loss Scenario • Imagine there was a legitimate error on your back taxes against you, and you must pay the government $10 [$10,000] immediately • However, they are also giving you the option of paying a different amount one year from now, instead. How much would the future amount need to be for you to choose it?

  14. Thought Listing

  15. Study 1: Choices

  16. Discount Parameter V = A / (1 + kD) k = (amount later - amount now) amount now * delay • Increasing number indicates more discounting (Mazur, 1987)

  17. Study 1: Results 1.2 1 0.8 0.6 $10 mean k $10,000 0.4 0.2 0 Gain Loss -0.2

  18. Explaining the Magnitude Effect for Gains • Impatience is insensitive to magnitude • Therefore, impatience has relatively less influence on large magnitude outcomes • Lower discount rates for larger magnitudes

  19. Study 1: Results 1.2 1 0.8 0.6 $10 mean k $10,000 0.4 0.2 0 Gain Loss -0.2

  20. Study 1: Results 1.2 1 0.8 0.6 $10 mean k $10,000 0.4 0.2 0 Gain Loss -0.2 Sign: B = .45, p < .001; Magnitude: B = -.11, p = .07; Sign X Magnitude: B = -.22, p = .001

  21. Explaining the Magnitude Effect for Losses • Impatience (to get it out of the way) is insensitive to magnitude • Therefore, impatience has relatively less influence on large magnitude outcomes • Higher discount rates for larger magnitudes

  22. Thought Coding Six categories: • Future uncertainty • Expecting the money will be more useful now than in the future • Earning interest on investments • Other: what you ought to do (for example, “I should wait”) • Other: what you want (for example, “I want it now to get it over with”) • None of the above

  23. Thought Coding Six categories: • Future uncertainty • Expecting the money will be more useful now than in the future • Earning interest on investments • Other: what you ought to do (for example, “I should wait”) • Other: what you want (for example, “I want it now to get it over with”) • None of the above

  24. Want Now Thoughts 0.4 0.35 0.3 0.25 $10 Mean proportion want now thoughts 0.2 $10,000 0.15 0.1 0.05 0 Gain Loss Sign: B = -.26, p < .001; Magnitude: B = -.20, p < .01; Sign X Magnitude: B = .06, p = ns

  25. Process Summary • Gains: greater magnitude  less impatience  less discounting • Losses: greater magnitude  less impatience  more discounting

  26. Study 1: Mediation for Gains Proportion of “Want now” Thoughts β = -.23, p <.05 β = + .19, p < .05 Magnitude Discounting (β = -.27, p < .01) β = -.23, p < .05 Bootstrapping Test p < .05

  27. Study 1: Mediation for Losses Proportion of “Want now” Thoughts β = -.21, p < .05 β = - .23, p < .05 Magnitude Discounting (β = .35, p < .001) β = .30, p < .01 Bootstrapping Test p < .05

  28. Study 1: Conclusions • Replicated sign & magnitude effects • Sign x Magnitude stronger than previous (within-subjects) studies • Want now thoughts mediate the magnitude effect for gains and losses • Impatience (as measured by want now thoughts) predicts discounting in opposite directions for gains and losses

  29. Study 2 Sign x Direction

  30. Direction Effect • Delay: default is today, with option to receive larger amount later • Accelerate: default is later, with option to receive smaller amount sooner • Greater discounting for delay than accelerate (Loewenstein, 1988)

  31. Explaining the Direction Effect • Creates a default for now or for later • People are initially biased in favor of the default option (Query Theory, Weber et al., 2007) • Subsequent thoughts are influenced by this bias • Default predicts the order and balance of thoughts, which predict choices (Query Theory, Weber et al., 2007)

  32. Explaining the Direction Effect • Creates a default for now or for later • People are initially biased in favor of the default option (Query Theory, Weber et al., 2007) • Subsequent thoughts are influenced by this bias • Default predicts the order and balance of thoughts, which predict choices (Query Theory, Weber et al., 2007)

  33. Explaining the Direction Effect • Creates a default for now or for later • People are initially biased in favor of the default option (Query Theory, Weber et al., 2007) • Subsequent thoughts are influenced by this bias • Default predicts the order and balance of thoughts, which predict choices (Query Theory, Weber et al., 2007)

  34. Reminder • For gains, impatience means greater discounting • For losses, impatience means lower discounting

  35. Study 2: Participants • 607 US residents • 75% women • Range of ages, education, & income • Same method as Study 1

  36. Study 2: Gain Scenarios • delay Imagine you have been selected to receive a $50 prize today. However, you also have the option of receiving a larger amount 3 months from now. • accelerate Imagine you have been selected to receive a $75 prize 3 months from today. However, you also have the option of receiving a smaller amount today.

  37. Study 2: Gain Scenarios • delay Imagine you have been selected to receive a $50 prize today. However, you also have the option of receiving a larger amount 3 months from now. • accelerate Imagine you have been selected to receive a $75 prize 3 months from today. However, you also have the option of receiving a smaller amount today.

  38. Study 2: Loss Scenarios • delay Imagine that you have been ticketed for a parking violation, and are required to pay $50 today. However, you also have the option of paying a larger amount 3 months from now. • accelerate Imagine that you have been ticketed for a parking violation, and are required to pay $75 3 months fromtoday. However, you also have the option of paying a smaller amount today.

  39. Study 2: Loss Scenarios • delay Imagine that you have been ticketed for a parking violation, and are required to pay $50 today. However, you also have the option of paying a larger amount 3 months from now. • accelerate Imagine that you have been ticketed for a parking violation, and are required to pay $75 3 months fromtoday. However, you also have the option of paying a smaller amount today.

  40. Study 2: Discounting 1.60 Delay Accelerate 1.20 0.80 k 0.40 0.00 -0.40 Gain Loss

  41. Study 2: Discounting 1.60 Delay Accelerate 1.20 0.80 k 0.40 0.00 -0.40 Gain Loss Sign: B = .34, p < .001 Direction: B = .07, p = .07 Sign X Direction: B = -.32, p < .001

  42. Study 2: Thought Coding

  43. Study 2: Thought Measure • Prominence of Now Thoughts (Cronbach’s α = 0.91) • Proportion of now thoughts • Proportion of later thoughts (reverse scored) • Order of thoughts Increasing number indicates more impatience

  44. Study 2: Thoughts 0.70 Delay 0.50 Accelerate 0.30 0.10 Prominence of Now Thoughts -0.10 -0.30 -0.50 -0.70 Gain Loss

  45. Study 2: Thoughts 0.70 Delay 0.50 Accelerate 0.30 0.10 Prominence of Now Thoughts -0.10 -0.30 -0.50 -0.70 Gain Loss Sign: B = -.36, p < .001 Direction: B = -.15, p < .001 Sign X Direction: B = -.06, p = .13

  46. Study 2: Mediation for Gains Prominence of “Now” Thoughts β = -.19, p = .006 β = +.62, p < .001 Direction Discounting (β = -.32, p < .001) β = -.23, p = .004 Sobel Z = -2.64, p = .008

  47. Study 2: Mediation for Losses Prominence of “Now” Thoughts β = -.08, p = .06 β = - .60, p < .001 Direction Discounting (β = .49, p < .001) β = .45, p < .001 Sobel Z = 1.89, p = .06

  48. Study 2: Conclusions • Replicate sign, direction, Sign x Direction • Now thoughts mediate direction effect for gains and losses • Impatience (as measured by now thoughts) predicts discounting in opposite directions for gains and losses

  49. General Conclusions • Impatience is “irrational” disutility of waiting • I want gainsnow • I want to get losses out of the way now

  50. General Conclusions Impatience • Explains Sign X Magnitude • Explains Sign X Direction • Sign is really important when thinking about discounting Greater discounting of gains Lower discounting of losses

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