Subjective perception of time and decision inconsistency in interval effect

Abstract

The interval effect refers to the phenomenon in which the discount rate decreases as the interval considered increases. It represents one of the many anomalies of the decision-making process in the context of intertemporal choices. This paper suggests that the latter anomaly is due to the perceived time and emotional drives involved in the moment of choice and their interaction. The study is developed through a direct comparison between empirical preferences and those predicted by the normative model, respectively determined by proper time, i.e., empirical time and normative time, which are different from objective time. Although it was known in the literature that the perception of time has a substantial impact on preferences and the phenomenon of temporal inconsistency, our study presents a measure that quantifies the decision-making bias caused by the subjective perception of time and contributes to the normalisation of choices defined as irrational. By the term normalisation, we mean to clarify the extent to which the cognitive structures of the decision-maker respect the principles of economic rationality. From an operational point of view, the present work's originality lies in proving that the same description of subjective time is not constant in the context of the interval effect. The experimental implementation provides empirical evidence of the latter considerations. The contribution of this work refers mainly to the field of behavioural finance as it aims to describe anomalies as inevitable consequences of individual cognitive processes.

Relationship between an inconsistent degree of financial literacy and inconsistent decision-making in intertemporal choices

“…The proposed individual questionnaire consists of two parts: the first measures FK, FB, FA, and consequently FL using an adapted version of [ 20 ] to our sample. The second constructs the individual discount function [ 18 , 19 ].…”

“…The scores obtained will be correlated with the degree of inconsistency of the discount function, as measured in Refs. [ 18 , 19 ].…”

Study of the Acute Stress Effects on Decision Making Using Electroencephalography and Functional Near-Infrared Spectroscopy: A Systematic Review

“…Subjective measures are useful, because they allow individuals to report their unique experiences and perceptions of stress. However, they can also be affected by bias and may not always accurately reflect an individual's true stress level [109]. Participants often undergo baseline subjective stress assessments first and then a saliva sample is collected for further examination.…”

An Analytic Network Process to Support Financial Decision-Making in the Context of Behavioural Finance

“…To calculate the degree of decrease in impatience [32,33], the hyperbolic factor [33,34] for the indifference pairs (x, s) ∼ (y, t) and (x, s + σ) ∼ (y, t + τ) where s < t, x < y, τ > 0 is defined as in Equation ( 1):…”

“…The degree to which impatience decreases over time is behaviourally related to emotional drives that intervene during decision-making and result in anomalous preferences [18]. The second measure, on the other hand, is a measure of the decision-maker's non-rationality obtained as the distance between empirical and exponential preferences [28,34]. This measure is expressed in relation to the subjective perception of time and quantifies the degree of uncertainty aversion.…”