Path Dependency in the Discounting of Delayed and Probabilistic Gains and Losses

Abstract

Human decision making often involves outcomes that are both risky and delayed. In such delayed lottery scenarios, the question of how such prospects are evaluated arises. An individual can arrive at their choice by following three different subjective value elicitation paths: (1) a direct path by considering the delay and risk of an outcome simultaneously; (2) a delay-probability path by first considering the delay and then the risk of an outcome; and (3) a probability-delay path by first considering the probability and then the delay of an outcome. Using a discounting framework, we conducted an experiment to investigate whether individual choices are path dependent, i.e., if the three paths elicit different subjective values of risky and delayed gains or losses. The experiment included an arbitrary selection of delays and individual probability estimates corresponding to each delay, obtained in an additional delay-probability trade-off task. Such approach ensured the equal individual decision factor strength of each outcome delay and probability. Our findings demonstrate that the human choice of risky and delayed gains or losses is indeed path dependent, which contrasts with the normative view. Furthermore, we present evidence that human choice more closely follows the delay-probability elicitation path than the probability-delay path in the domain of gains.

The effect of risk on intertemporal choice and preference reversal

“…Theoretically, it remains unsettled how risk and time interact with each other when decision outcomes are both delayed and risky (Baucells & Heukamp, 2012;Vanderveldt et al, 2015). In addition, as reviewed below, there are only a few empirical studies on the effect of risk on waiting preference and these have yielded mixed results (Anderson & Stafford, 2009;Białaszek & Marcowski, 2019;Hardisty & Pfeffer, 2017;Keren & Roelofsma, 1995;Öncüler, 2000;Sun & Li, 2010;Vanderveldt et al, 2015;Weber & Chapman, 2005). Studies on the effect of risk on temporal preference reversal are even more scarce.…”

Gain-Loss Asymmetry in Delay and Effort Discounting of Different Amounts

“…The pattern of results, in which gains were discounted less steeply than losses of the same magnitude for the smallest amount in the physical effort condition, but such an effect was absent in the cognitive effort condition, might be due to the fact that the two types of effort were not calibrated with each other. It would be worthwhile for further studies to use equal or calibrated values of effort across domains (see for example : Białaszek and Marcowski, 2019).…”