Preference Reversals Due to Myopic Discounting of Delayed Reward

Abstract

A basic stationarity axiom of economic theory assumes stable preference between two deferred goods separated by a fixed time To test this assumption, we offered subjects choices between delayed rewards, while manipulating the delays to those rewards Preferences typically reversed with changes in delay, as predicted by hyperbolic discounting models of impulsiveness Of 36 subjects, 34 reversed preference from a larger, later reward to a smaller, earlier reward as the delays to both rewards decreased We conclude that the stationarity axiom is not appropriate in models of human choice

The behavioral economics of will in recovery from addiction

“…A set of such inferred indifference points over a range of delays allows the estimation of an overall delay discount function relating delay to value. Such studies have been carried out with choices between points on a counter (Forzano and Logue, 1994), hypothetical health outcomes (Chapman, 1996, Chapman, 2000, Chapman et al, 2001, van der Pol and Cairns, 2001, hypothetical drug or alcohol (Madden et al, 1997, Petry, 2001, hypothetical money with context (Thaler, 1981, Chapman, 1996, Chesson and Viscusi, 2000, Bohm, 1994, hypothetical money without context (Fuchs, 1982, Ainslie and Haendel, 1983, Madden et al, 1997, actual money (Crean et al, 2000, Ainslie and Haendel, 1983, Kirby and Herrnstein, 1995, Richards et al, 1999, Wallace, 1979, consumer goods (Kirby and Herrnstein, 1995), food (Kirby and Herrnstein, 1995, Mischel et al, 1969, Mischel and Grusec, 1967, Forzano and Logue, 1994; and juice (Logue et al, 1990). Less frequently, choices among punishments have been used as well, including shocks (Cook and Barnes, 1964, Hare, 1966, Mischel et al, 1969 and aversive noise (Navarick, 1982).…”

Time Discounting in Relation to Career Preferences

“…From Figure 3 it can be seen that after the initial enthusiasm, the perceived value of the longer term reward decreased in the middle stages of the program. Such an outcome is not predicted by the time discounting model proposed by Kirby and Herrnstein (1995) where the attractiveness of both options is expected to continue to increase (see Figure 1). It can also be seen that there was a marked increase in the perceived value of shorter term rewards after a year or so of the program.…”

“…In essence, the preference is always for the shorter term reward. Kirby and Herrnstein (1995), however, argued that delay discount rates do not remain constant. Instead, they proposed that the choice between two outcomes with differing delays reverses as a function of the distance between the time the choice has to be made and the extent of the delay.…”

“…However, as time passes and the two alternatives become nearer to the present, the preference reverses to the more immediate goal, crossing over at point C in Kirby and Herrnstein's (1995) illustration of what has been termed the hyperbolic discounting model (See Figure 1). Reversal Model of Time Discounting (from Kirby & Herrnstein, 1995) The hyperbolic discounting model, accounting as it does for reversals of preference over time, has received strong support from a variety of disciplines. The relationship between time discounting and aspects of decision-making at work was examined by Hesketh, WatsonBrown and Whiteley (1998).…”

“…In addition to the delayed gratification, employees of the present company were likely to be tempted by lesser shorter term rewards, another classic characteristic of time discounting situations. Given these conditions it was expected that, over time, employees' preferences would show the classic reversal pattern described by Kirby and Herrnstein (1995) and noted by Hesketh et al (1998) in laboratory studies of career preference.…”