The Drift-Diffusion Model (DDM) is the prevalent computational model of the speed-accuracy trade-off in decision making. The DDM provides an explanation of behavior by optimally balancing reaction times and error rates. However, when applied to value-based decision making, the DDM makes the stark prediction that reaction times depend only on the relative utility difference between the options and not on absolute utility magnitudes. This prediction runs counter to evidence that reaction times decrease with higher utility magnitude. Here, we ask if and how it could be optimal for reaction times to show this observed pattern. We study an algorithmic framework that balances the cost of delaying rewards against the utility of obtained rewards. We find that the functional form of the cost of delay plays a key role, with the empirically observed pattern becoming optimal under multiplicative discounting. We add to the empirical literature by testing whether utility magnitude affects reaction times using a novel methodology that does not rely on functional form assumptions for the subjects’ utilities. Our results advance the understanding of how and why reaction times are sensitive to the magnitude of rewards.

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We analyze retail prices and at-the-dock (import) prices of speci…c items in the Bureau of Labor Statistics'(BLS) CPI and IPP databases, using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail. This identi…cation allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the United States to their retail outlet. We …nd that overall U.S. distribution wedges are 50-70%, around 10 to 20 percentage points higher than that reported in the literature. We discuss the implications of this for measuring the size of the "pure" tradeables sector, exchange rate pass-through, and real exchange rate determination. We …nd that distribution wedges are very stable over time but there is considerable variation across items. There is some variation across the country of origin for the imported item, for our major trading partners, but not as much as the cross-item variation. We also investigate the determinants of distribution wedges, …nding that wedges do not vary systematically with exchange rates, but are related to other features of the micro data.

We analyze retail prices and at-the-dock (import) prices of speci…c items in the Bureau of Labor Statistics'(BLS) CPI and IPP databases, using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail. This identi…cation allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the United States to their retail outlet. We …nd that overall U.S. distribution wedges are 50-70%, around 10 to 20 percentage points higher than that reported in the literature. We discuss the implications of this for measuring the size of the "pure" tradeables sector, exchange rate pass-through, and real exchange rate determination. We …nd that distribution wedges are very stable over time but there is considerable variation across items. There is some variation across the country of origin for the imported item, for our major trading partners, but not as much as the cross-item variation. We also investigate the determinants of distribution wedges, …nding that wedges do not vary systematically with exchange rates, but are related to other features of the micro data.

We analyze retail prices and at-the-dock (import) prices of speci…c items in the Bureau of Labor Statistics'(BLS) CPI and IPP databases, using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail. This identi…cation allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the United States to their retail outlet. We …nd that overall U.S. distribution wedges are 50-70%, around 10 to 20 percentage points higher than that reported in the literature. We discuss the implications of this for measuring the size of the "pure" tradeables sector, exchange rate pass-through, and real exchange rate determination. We …nd that distribution wedges are very stable over time but there is considerable variation across items. There is some variation across the country of origin for the imported item, for our major trading partners, but not as much as the cross-item variation. We also investigate the determinants of distribution wedges, …nding that wedges do not vary systematically with exchange rates, but are related to other features of the micro data.