I want it now

1
I want it now!

• Why discount rates for losses show reverse
  direction and reverse magnitude effects

David Hardisty, Kirstin Appelt, Elke
Weber Columbia University NSF SES-0345840
SES-0820496 NIA 5R01AG027934-02
2
Co-Authors
Kirstin Appelt
Elke Weber
3
Why study discounting?

• Insufficient savings (Thaler Benartzi, 2004)
• Unhealthy behavior (Bickel et al., 1999)
• Depletion of environmental resources (Hendrickx
  et al., 2001)
• All involve myopic tradeoffs between immediate
  and future costs and benefits
• Discounting the future means we want gains now
  and losses later

4
Discounting Anomalies

• Sign effect losses discounted less (Thaler,
  1981 Hardisty Weber, 2009)
• Magnitude effect large outcomes discounted less
  (Thaler, 1981)
• Direction effect more discounting when you delay
  than when you accelerate (Loewenstein, 1988
  Weber et al., 2007)

5
Reversals

• Direction and magnitude effects are eliminated or
  reversed for losses (Benzion et al., 1989
  Shelley, 1993)
• Unfortunately, forgotten. Why?
• Dont fit standard models
• No process data

6
Reconceptualizing Impatience

• Impatience is irrational disutility of waiting
• for gaining 100 I want it now
• for losing 100 I want to get it out of the way
  now (Loewenstein, 1987)
• Impatience is relatively insensitive to outcome
  magnitude (Benhabib et al., 2007)
• This explains the sign effect, magnitude effect,
  direction effect, and their interactions

7
Implications

• For gains, impatience means more discounting
• For losses, impatience means less discounting

8
Explaining the Sign Effect

• Get 1,000 now or 1,000 next year?
  uncertainty (Weber Chapman, 2005 Epper et al.,
  2009) resource slack (Zauberman Lynch,
  2005) interest on investment (e.g., Franklin,
  1784 Samuelson, 1937) impatience (Laibson,
  1997)? high discount rate
• Pay 1,000 now or 1,000 next year? other
  factors - impatience ? lower discount rate

9
Outline

• Study 1 Sign, Magnitude, and Sign X Magnitude
• Study 2 Sign, Direction, and Sign X Direction
• Thought listings
• National samples
• Between-subjects designs

10
Study 1

• Sign X Magnitude

11
Study 1 Participants

• 199 US residents, recruited and run online
• 76 female
• Range of ages, education, income
• 8 compensation

12
Study 1 Gain Scenario

• Imagine there was a legitimate error on your back
  taxes in your favor, and you will immediately
  receive 10 10,000 from the government.
• However, they are also giving you the option of
  receiving a different amount one year from now,
  instead. How much would the future amount need to
  be for you to choose it?

13
Study 1 Loss Scenario

• Imagine there was a legitimate error on your back
  taxes against you, and you must pay the
  government 10 10,000 immediately
• However, they are also giving you the option of
  paying a different amount one year from now,
  instead. How much would the future amount need to
  be for you to choose it?

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Thought Listing
15
Study 1 Choices
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Discount Parameter

• V A / (1 kD)
• k (amount later - amount now)
• amount now delay
• Increasing number indicates more discounting

(Mazur, 1987)
17
Study 1 Results
1.2
1
0.8
0.6
10
mean k
10,000
0.4
0.2
0
Gain
Loss
-0.2
18
Explaining the Magnitude Effect for Gains

• Impatience is insensitive to magnitude
• Therefore, impatience has relatively less
  influence on large magnitude outcomes
• Lower discount rates for larger magnitudes

19
Study 1 Results
1.2
1
0.8
0.6
10
mean k
10,000
0.4
0.2
0
Gain
Loss
-0.2
20
Study 1 Results
1.2
1
0.8
0.6
10
mean k
10,000
0.4
0.2
0
Gain
Loss
-0.2
Sign B .45, p lt .001 Magnitude B -.11, p
.07 Sign X Magnitude B -.22, p .001
21
Explaining the Magnitude Effect for Losses

• Impatience (to get it out of the way) is
  insensitive to magnitude
• Therefore, impatience has relatively less
  influence on large magnitude outcomes
• Higher discount rates for larger magnitudes

22
Thought Coding

• Six categories
• Future uncertainty
• Expecting the money will be more useful now than
  in the future
• Earning interest on investments
• Other what you ought to do (for example, I
  should wait)
• Other what you want (for example, I want it now
  to get it over with)
• None of the above

23
Thought Coding

• Six categories
• Future uncertainty
• Expecting the money will be more useful now than
  in the future
• Earning interest on investments
• Other what you ought to do (for example, I
  should wait)
• Other what you want (for example, I want it now
  to get it over with)
• None of the above

24
Want Now Thoughts
0.4
0.35
0.3
0.25
10
Mean proportion want now thoughts
0.2
10,000
0.15
0.1
0.05
0
Gain
Loss
Sign B -.26, p lt .001 Magnitude B -.20, p
lt .01 Sign X Magnitude B .06, p ns
25
Process Summary

• Gains greater magnitude ? less impatience ?
  less discounting
• Losses greater magnitude ? less impatience ?
  more discounting

26
Study 1 Mediation for Gains
Proportion of Want now Thoughts
ß -.23, p lt.05
ß .19, p lt .05
Magnitude
Discounting
(ß -.27, p lt .01)
ß -.23, p lt .05
Bootstrapping Test p lt .05
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Study 1 Mediation for Losses
Proportion of Want now Thoughts
ß -.21, p lt .05
ß - .23, p lt .05
Magnitude
Discounting
(ß .35, p lt .001)
ß .30, p lt .01
Bootstrapping Test p lt .05
28
Study 1 Conclusions

• Replicated sign magnitude effects
• Sign x Magnitude stronger than previous
  (within-subjects) studies
• Want now thoughts mediate the magnitude effect
  for gains and losses
• Impatience (as measured by want now thoughts)
  predicts discounting in opposite directions for
  gains and losses

29
Study 2

• Sign x Direction

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Direction Effect

• Delay default is today, with option to receive
  larger amount later
• Accelerate default is later, with option to
  receive smaller amount sooner
• Greater discounting for delay than accelerate
  (Loewenstein, 1988)

31
Explaining the Direction Effect

• Creates a default for now or for later
• People are initially biased in favor of the
  default option (Query Theory, Weber et al., 2007)
• Subsequent thoughts are influenced by this bias
• Default predicts the order and balance of
  thoughts, which predict choices (Query Theory,
  Weber et al., 2007)

32
Explaining the Direction Effect

• Creates a default for now or for later
• People are initially biased in favor of the
  default option (Query Theory, Weber et al., 2007)
• Subsequent thoughts are influenced by this bias
• Default predicts the order and balance of
  thoughts, which predict choices (Query Theory,
  Weber et al., 2007)

33
Explaining the Direction Effect

• Creates a default for now or for later
• People are initially biased in favor of the
  default option (Query Theory, Weber et al., 2007)
• Subsequent thoughts are influenced by this bias
• Default predicts the order and balance of
  thoughts, which predict choices (Query Theory,
  Weber et al., 2007)

34
Reminder

• For gains, impatience means greater discounting
• For losses, impatience means lower discounting

35
Study 2 Participants

• 607 US residents
• 75 women
• Range of ages, education, income
• Same method as Study 1

36
Study 2 Gain Scenarios

• delay Imagine you have been selected to receive
  a 50 prize today. However, you also have the
  option of receiving a larger amount 3 months from
  now.
• accelerate Imagine you have been selected to
  receive a 75 prize 3 months from today. However,
  you also have the option of receiving a smaller
  amount today.

37
Study 2 Gain Scenarios

• delay Imagine you have been selected to receive
  a 50 prize today. However, you also have the
  option of receiving a larger amount 3 months from
  now.
• accelerate Imagine you have been selected to
  receive a 75 prize 3 months from today. However,
  you also have the option of receiving a smaller
  amount today.

38
Study 2 Loss Scenarios

• delay Imagine that you have been ticketed for a
  parking violation, and are required to pay 50
  today. However, you also have the option of
  paying a larger amount 3 months from now.
• accelerate Imagine that you have been ticketed
  for a parking violation, and are required to pay
  75 3 months from today. However, you also have
  the option of paying a smaller amount today.

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Study 2 Loss Scenarios

• delay Imagine that you have been ticketed for a
  parking violation, and are required to pay 50
  today. However, you also have the option of
  paying a larger amount 3 months from now.
• accelerate Imagine that you have been ticketed
  for a parking violation, and are required to pay
  75 3 months from today. However, you also have
  the option of paying a smaller amount today.

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Study 2 Discounting
1.60
Delay
Accelerate
1.20
0.80
k
0.40
0.00
-0.40
Gain
Loss
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Study 2 Discounting
1.60
Delay
Accelerate
1.20
0.80
k
0.40
0.00
-0.40
Gain
Loss
Sign B .34, p lt .001 Direction B
.07, p .07 Sign X Direction B
-.32, p lt .001
42
Study 2 Thought Coding
43
Study 2 Thought Measure

• Prominence of Now Thoughts (Cronbachs a 0.91)
• Proportion of now thoughts
• Proportion of later thoughts (reverse scored)
• Order of thoughts
• Increasing number indicates more impatience

44
Study 2 Thoughts
0.70
Delay
0.50
Accelerate
0.30
0.10
Prominence of Now Thoughts
-0.10
-0.30
-0.50
-0.70
Gain
Loss
45
Study 2 Thoughts
0.70
Delay
0.50
Accelerate
0.30
0.10
Prominence of Now Thoughts
-0.10
-0.30
-0.50
-0.70
Gain
Loss
Sign B -.36, p lt .001 Direction B -.15,
p lt .001 Sign X Direction B -.06, p
.13
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Study 2 Mediation for Gains
Prominence of Now Thoughts
ß -.19, p .006
ß .62, p lt .001
Direction
Discounting
(ß -.32, p lt .001)
ß -.23, p .004
Sobel Z -2.64, p .008
47
Study 2 Mediation for Losses
Prominence of Now Thoughts
ß -.08, p .06
ß - .60, p lt .001
Direction
Discounting
(ß .49, p lt .001)
ß .45, p lt .001
Sobel Z 1.89, p .06
48
Study 2 Conclusions

• Replicate sign, direction, Sign x Direction
• Now thoughts mediate direction effect for gains
  and losses
• Impatience (as measured by now thoughts) predicts
  discounting in opposite directions for gains and
  losses

49
General Conclusions

• Impatience is irrational disutility of waiting
• I want gains now
• I want to get losses out of the way now

50
General Conclusions

• Impatience
• Explains Sign X Magnitude
• Explains Sign X Direction
• Sign is really important when thinking about
  discounting

Greater discounting of gains
Lower discounting of losses
51
Thanks to...

• The National Science Foundation
  SES-03455840 SES-0352062
• The National Institute on Aging 5R01AG027934-02
• The CRED and PAM labs

52
Thank You!

• www.davidhardisty.info
• www.kirstinappelt.com

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References (1)

• Benhabib, J., Bisin, A., Schotter, A. (2007).
  Present-bias, quasi-hyperbolic discounting, and
  fixed costs. Working paper. New York University.
• Benzion, U., Rapoport, A., Yagil, J. (1989).
  Discount rates inferred from decisions An
  experimental study. Management Science, 35(3),
  270-284.
• Bickel, W. K., Odum, A. L., Madden, G. J.
  (1999). Impulsivity and cigarette smoking Delay
  discounting in current, never-, and ex-smokers.
  Psychopharmacology (Berlin), 146, 447-454
• Franklin, B. (1748). Advice to a young tradesman.
• Hardisty, D. J., Weber, E. U. (2009).
  Discounting future green Money vs the
  environment. Journal of Experimental Psychology
  General, 138(3), 329-340.
• Hendrickx, L., Poortinga, W., van der Kooij, R.
  (2001). Temporal factors in resource dilemmas.
  Acta Psychologica, 108, 137-154
• Johnson, E. J., Häubl, G., Keinan, A. (2007).
  Aspects of endowment A query theory of value
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  Psychology Learning, Memory and Cognition,
  33(3), 461-474.
• Laibson, D. (1997). Golden eggs and hyperbolic
  discounting. The Quarterly Journal of Economics,
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• Loewenstein, G. (1987). Anticipation and the
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• Loewenstein, G. F. (1988). Frames of mind in
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54
References (2)

• Samuelson, P. A. (1937). A note on the
  measurement of utility. A note on measurement of
  utility. The Review of Economic Studies, 4,
  155-161.
• Shelley, M. K. (1993). Outcome signs, questions
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• Thaler, R. H. (1981). Some empirical evidence on
  dynamic inconsistency. Economics Letters, 8,
  201-207.
• Thaler, R. H., Benartzi, S. (2004). Save More
  Tomorrow Using behavioral economics to increase
  employee saving. Journal of Political Economy,
  112, S164-S187.
• Weber, B. J., Chapman, G. B. (2005). The
  combined effects of risk and time on choice Does
  uncertainty eliminate the immediacy effect? Does
  delay eliminate the certainty effect?
  Organizational Behavior and Human Decision
  Processes, 96, 104-118.
• Weber, E. U., Johnson, E. J., Milch, K. F.,
  Chang, H., Brodscholl, J. C., Goldstein, D. G.
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• Zauberman, G., Lynch, J. J. G. (2005). Resource
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55
Bonus Slides!
56
Standardized Median Rank Difference

• SMRD 2 (MRl MRn) / N
• MRl median rank of thoughts favoring later
• MRn median rank of thoughts favoring now
• N total number of now later thoughts
• Higher number indicates more now bias

57
Study 2 Delay Titration
58
Study 2 Accelerate Titration
59
Study 2 Query Theory Mediation
Thought Order
ß -.13, p lt .001
ß .32, p lt .001
Proportion of Now Thoughts
(ß -.04, p .01)
Direction
ß .00, p .8
Sobel Z -3.68, p lt .001
60
Study 2 Thought Order
61
Study 2 Thought Proportions
62
Study 2 Mediation of Sign Effect
Prominence of Now Thoughts
ß -.34, p lt .001
ß .61, p lt .001
Sign
Discounting
(ß .44, p lt .001)
ß .50, p lt .001
Sobel Z -1.97, p .05
63
Study 2 Predicting Discounting
64
Other what you want (for example, I want it now
to get it over with)
65
Study 1 Small Gain Titration
66
Study 1 Choices
Indifference point 10 today 10.75 one year
from today
67
Study 1 Thought Order
68
Study 1 Thought Balance
69
Future Uncertainty
70
Money Will Be More Useful Now
71
Interest on Investments
72
Supporting evidence that losses are different

• In both studies, CRT age predicted discounting
  of delay framed gains, but not delay framed losses