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Time and Decision

Time and Decision: Economic and Psychological Perspectives of Intertemporal Choice

George Loewenstein
Daniel Read
Roy Baumeister
Copyright Date: 2003
Published by: Russell Sage Foundation
Pages: 584
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  • Book Info
    Time and Decision
    Book Description:

    How do people decide whether to sacrifice now for a future reward or to enjoy themselves in the present? Do the future gains of putting money in a pension fund outweigh going to Hawaii for New Year's Eve? Why does a person's self-discipline one day often give way to impulsive behavior the next? Time and Decision takes up these questions with a comprehensive collection of new research on intertemporal choice, examining how people face the problem of deciding over time. Economists approach intertemporal choice by means of a model in which people discount the value of future events at a constant rate. A vacation two years from now is worth less to most people than a vacation next week. Psychologists, on the other hand, have focused on the cognitive and emotional underpinnings of intertemporal choice. Time and Decision draws from both disciplinary approaches to provide a comprehensive picture of the various layers of choice involved. All of us make important decisions every day-many of which profoundly affect the quality of our lives. Time and Decision provides a fascinating look at the complex factors involved in how and why we make our choices, so many of them short-sighted, and helps us understand more precisely this crucial human frailty.

    eISBN: 978-1-61044-366-1
    Subjects: Economics, Psychology, Sociology

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. Contributors
    (pp. ix-xii)
  4. Acknowledgments
    (pp. xiii-xiv)
  5. Introduction
    (pp. 1-12)
    George Loewenstein, Daniel Read and Roy F. Baumeister

    Psychology and economics have a classic love-hate relationship. Members of each discipline often express positive sentiments about the other in the abstract, and acknowledge complementarities between disciplines in methods, subject matter, and levels of analysis. Yet actual encounters often produce glassy eyes or, worse, overt hostility. Both disciplines set out to use scientific method to explain and describe human behavior. They differ, however, in the details of their respective paradigms. Psychology is mainly empirically based, embracing a great variety of theories (frequently incompatible, as some economists are not shy about pointing out). Psychologists usually start from phenomena, develop a local...

  6. 1 Time Discounting and Time Preference: A Critical Review
    (pp. 13-86)
    Shane Frederick, George Loewenstein and Ted O’Donoghue

    Intertemporal choices—decisions involving trade-offs among costs and benefits occurring at different times—are important and ubiquitous. Such decisions not only affect one’s health, wealth, and happiness, but may also, as Adam Smith first recognized, determine the economic prosperity of nations. In this chapter, we review empirical research on intertemporal choice, and present an overview of recent theoretical formulations that incorporate insights gained from this research.

    Economists’ attention to intertemporal choice began early in the history of the discipline. Not long after Adam Smith called attention to the importance of intertemporal choice for the wealth of nations, the Scottish economist...

  7. PART I Philosophical, Evolutionary, and Neurobiological Underpinnings

    • 2 Time Preference and Personal Identity
      (pp. 89-114)
      Shane Frederick

      Economists usually regard time preference as any other type of preference. A preference for current utility over future utility is treated the same as the preference for an apple over an orange—as a personal taste, whose rationality cannot be disputed. There is one important difference, however. Choosing an apple over an orange is compatible with utility maximization: while one cannot be certain that the apple conferred more utility than the orange, it seems reasonable to assume so. Such an assumption is not tenable in the case of time preference: someone who chooses a smaller amount of utility now over...

    • 3 The Evolution of Patience
      (pp. 115-138)
      Alex Kacelnik

      The young couple beholds the forbidden fruit with both longing and misapprehension. They suspect that biting the apple will yield immediate pleasure, but are concerned that given that it is forbidden, it may cause unpleasantness in the future. How can they decide if the delayed woes are worth paying in exchange for the immediate joy? They face an intertemporal problem that is also plagued by uncertainty, because they do not know the magnitude of either positive or negative consequences nor over how long will they persist. They may or may not care whether the forthcoming misery will affect their descendents....

    • 4 A Neurobiology of Intertemporal Choice
      (pp. 139-172)
      Stephen B. Manuck, Janine D. Flory, Matthew F. Muldoon and Robert E. Ferrell

      Life’s problems have a certain sameness for most people. As the evolutionary psychologists tell it, these problems have to do largely with survival and reproduction, with getting resources and begetting offspring in an uncertain world inhabited by others struggling to do the same. True perhaps, ultimately, but ultimate goals are reached by a succession of present acts, and the here and now generally finds us engaged in more mundane problem solving, occasioned by the myriad dilemmas of daily life. As illustrated throughout this volume, one such dilemma is calledintertemporal choiceand concerns decision making in situations where we must...

  8. PART II Theoretical Perspectives

    • 5 Sustaining Delay of Gratification over Time: A Hot-Cool Systems Perspective
      (pp. 175-200)
      Walter Mischel, Ozlem Ayduk and Rodolfo Mendoza-Denton

      The dieter’s decision to forgo the pizza, the smoker’s vow never to light another cigarette, and the compulsive shopper’s resolution to steer clear of the latest sale all too often turn out to be choices and commitments that soon turn into failed good intentions. Successful implementation of initial choices to delay immediate gratification for the sake of delayed but larger benefits requires not only making the initial choice, but also maintaining that choice in the face of the temptations and obstacles encountered along the route. In this sense, turning good intentions into willpower requires a continuous choice to defer immediate...

    • 6 Willpower, Choice, and Self-Control
      (pp. 201-216)
      Roy F. Baumeister and Kathleen D. Vohs

      The self cannot be described as reactive, disinterested, or apathetic. Quite the contrary: most activities in which a person engages are willfully initiated, chosen, or controlled in one form or another. Self-regulation is involved in a multitude of tasks such as getting out of bed, suppressing a worrisome thought, forcing oneself to smile through disappointment, overriding the temptation of an extramarital affair, running for exercise, and staying alert through a dull lecture.

      The capacity of the human self to override its initial responses is one of the most important, powerful, and adaptive aspects of human nature. The immense flexibility and...

    • 7 Self-Awareness and Self-Control
      (pp. 217-244)
      Ted O’Donoghue and Matthew Rabin

      People have self-control problems: from a prior perspective, they want to behave relatively patiently, but as the moment of action approaches, they want to behave relatively impatiently.¹ While the existence of self-control problems is well established and much discussed in psychological research, a standard assumption used in economic models of intertemporal choice is that a person’s preferences cannot change over time. Recently, however, a small set of economists have studied the implications of self-control problems for a variety of economic behaviors, including consumption-saving decisions, procrastination, addiction, information acquisition, and job search.

      When a person has self-control problems and his preferences...

    • 8 Construal Level Theory of Intertemporal Judgment and Decision
      (pp. 245-276)
      Nira Liberman and Yaacov Trope

      Construal level theory (CLT) posits that temporal distance influences the evaluation and choice of future events by systematically changing the way they are construed. We propose that individuals form higher-level construals of distant future events than near future events. High-level construals are schematic, abstract, and include central features of events, whereas low-level construals are less schematic, more concrete, and may also include incidental, peripheral features of events. We argue, then, that judgment and choice regarding the more temporally distant events are based on higher-level construals of the events. Thus temporal distance affects level of construal, which in turn affects evaluation...

    • 9 Self-Signaling and Self-Control
      (pp. 277-298)
      Drazen Prelec and Ronit Bodner

      Self-control is a hallmark virtue of human character. To lack self-control is to be governed by momentary pleasures even when these pleasures place larger values at risk. Willing the tired body to exercise or the tired mind to another hour of work are but two examples of active self-control—the tolerance of pain in return for a larger but more remote and uncertain gain. Turning down a chocolate dessert or an attractive sexual encounter are examples of passive self-control—avoiding immediate gratification to preserve broader personal objectives or self-esteem. The importance of self-control for individual happiness and social welfare is...

  9. PART III Patterns of Preference

    • 10 Subadditive Intertemporal Choice
      (pp. 301-322)
      Daniel Read

      In the study of decision making, researchers typically compare the observed pattern of choice with a normative one, meaning the one that people would adopt if they were “rational.” The normative model for decision making under risk is expected utility theory, and for intertemporal choice it isdiscounted utility(DU) theory. In a simplified form, DU theory holds that a rational decision maker will discount the costs or benefits from all delayed events by a constant rate per unit of time (Samuelson 1937; Strotz 1955). This constant rate is analogous to a psychological interest rate, and the same equations are...

    • 11 Summary Assessment of Experiences: The Whole Is Different from the Sum of Its Parts
      (pp. 323-350)
      Dan Ariely and Ziv Carmon

      Common experiences such as watching a film, waiting to be served at a restaurant, or undergoing a medical procedure unfold over time through a stream of transient states that may vary from moment to moment in their intensity (for example, become more or less pleasant) and even in sign (for example, change from being pleasant to being unpleasant). A visit to the dentist for example, may begin with a boring wait in the reception room. Treatment can then begin with an unpleasant but not painful checkup, proceed with a painful drilling, and end with a lingering mildly painful sensation. Similarly,...

    • 12 Predicting and Indulging Changing Preferences
      (pp. 351-392)
      George Loewenstein and Erik Angner

      Decisions, from the most mundane to the most momentous, often involve aprediction of future preferences. Whether one is shopping for groceries, contemplating whether to “tie” the knot, or (as in the epigraph) deciding whether to sign the lease on an apartment, the feelings and tastes that matter may not be those one currently has but rather those that one anticipates having when the consequences of the decision are experienced. Mispredicting future preferences can result in diverse negative consequences, from uneaten groceries to painful divorces to the suicidal feeling of being trapped for another year in an apartment one detests....

  10. PART IV Applications

    • 13 Time Discounting of Health Outcomes
      (pp. 395-418)
      Gretchen B. Chapman

      Research on the psychology of intertemporal choice typically employs a choice between a small immediate outcome and a larger delayed outcome. The decision maker makes a series of choices or gives a judgment to indicate how much larger the delayed outcome would need to be to make it just as attractive as the immediate outcome. This indifference point can be used to compute the temporal discount rate, or the percentage increase in magnitude that is needed to offset a given time delay. For example, if someone said that $100 to be received now was just as attractive as $110 to...

    • 14 Delay Discounting: A Fundamental Behavioral Process of Drug Dependence
      (pp. 419-440)
      Warren K. Bickel and Matthew W. Johnson

      Ernst Mach states one of the basic goals of all sciences: to discover the commonalities or fundamental elements that provide a parsimonious account of the subject matter. In the science of drug dependence, these fundamental elements, or underlying behavioral processes, are generally not well understood. To date only two such processes—drug reinforcement and drug craving—have been conclusively identified. From our perspective, drug dependence is unlikely to result from merely one or two behavioral processes. If those were the only processes involved, we would have expected greater success in the prevention and treatment of drug dependence than has been...

    • 15 Fear as a Policy Instrument
      (pp. 441-458)
      Andrew Caplin

      Many of the most important decisions that we make depend on the extent of our orientation toward the future. Our long-term financial fitness depends on how much we save in our early and middle years. Our long-term physical fitness depends on the extent that we adopt healthy habits of life when young. Despite their common dependence on future orientation, academic analyses of savings behavior and of preventive health care draw on entirely different intellectual traditions. Savings behavior has been almost the exclusive domain of economists, while health psychologists have dominated the research on preventive health care.

      Differences in intellectual tradition...

    • 16 Dieting as an Exercise in Behavioral Economics
      (pp. 459-490)
      C. Peter Herman and Janet Polivy

      It’s easy to decide to go on a weight-loss diet. The benefits of such a diet are obvious enough. During a confrontation with the bathroom scale or mirror, we can see the long-term advantages of dietary restraint and how they outweigh the fleeting advantages of caloric indulgence. The problem of course is that we can’t stay in the bathroom forever. We find ourselves all too often in the kitchen, the dining room, or a restaurant. The food that was so easy to forgo as an abstraction in the bathroom is not so easy to forgo when it’s right in front...

    • 17 Self-Rationing: Self-Control in Consumer Choice
      (pp. 491-516)
      Klaus Wertenbroch

      Most of the decisions in our lives as consumers are recurring over time. How much television should we watch tonight? How many potato chips should we eat tonight (while watching television)? How much money can we afford to spend on taking our date out to dinner? A normative analysis of such repeated choices to expend a resource (health, leisure time, earnings, goodwill, and so on) makes all these choices subject to the same global constraint. Our cholesterol level imposes a global constraint on deciding how many chips to eat on a given night. Our expected life expectancy imposes a global...

    • 18 The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation
      (pp. 517-544)
      George-Marios Angeletos, David Laibson, Andrea Repetto, Jeremy Tobacman and Stephen Weinberg

      Our preferences for the long run tend to conflict with our short-run behavior. When planning for the long run, weintendto meet our deadlines, exercise regularly, and eat healthfully. Yet in the short run we have little interest in revising manuscripts, jogging on the stairmaster, and skipping the chocolate soufflé à la mode. Delay of gratification is a nice long-term goal, but instant gratification is disconcertingly tempting.

      This gap between long-run intentions and short-run actions is apparent across a wide range of behaviors, including saving choices. A 1997 survey found that 76 percent of respondents believe they should be...

  11. Index
    (pp. 545-570)