Today’s paper co-authored by Angela Duckworth again straddles the two worlds of psychology and economics.

English: A comparison of the discount factor o...

English: A comparison of the discount factor of hyperbolic discounting with that of exponential discounting. (Photo credit: Wikipedia)

  1. Temporal discounting or time preference is the preference people show towards immediate short-term rewards over higher but later long-term gains. People are willing to accept much lower sums (of say money) now, than they would, for sure, receive at some time in the future. This preference is for sure sums and is distinct and different form uncertainty/risk avoidance.
  2. Different people have different temporal discounting rates; some discount future gains much more steeply than others – these people will prefer immediate rewards much more strongly than those who have a less steep discount function.
  3. Typical rewards considered in temporal discounting studies are monetary rewards; however a case can be made that other non-equivalent types of rewards exist like edible items, vacation experiences, health outcomes etc. Previous research has shown that contrary to classical economics models, people have different discount rates for different types of rewards; this is called domain-specificity of temporal discounting.
  4. Different people desire and like different types of rewards to different degrees; for e.g., someone may desire to be healthy and prioritize over monetary rewards.  Although, as per research done by Berridge et al, liking and desire are different functions, they are treated together in this paper and operationalized as temptation for the reward.
  5. There is evidence that there are two systems involved in decision-making – the system I or ‘hot’ and system II or ‘cold’ popularized by Kahneman et al.  The beta-delta preference model formalizes this by positing that there are two factors influencing choice- a beta factor making a sharp distinction in present and future and a constant delta discount factor.
  6. If you like and desire a reward very much, your emotional/ ‘hot’ system will get activated and will override the ‘cold’ system to the extent that you will discount this reward very steeply (prefer strongly the immediate reward) . If however, you are not too excited by the reward and are indifferent to it, the ‘cold’ system will be much more dominant and discounting will not be as steep.
  7. The experiment conducted of three reward conditions- eating candy, eating chips, drinking beer and temptation was measured using self-report for these rewards.
  8. Temporal discounting was measured using a choice task in which choices were presented for different quantities of all three rewards (plus dollars) and the delay contrasted with now, versus a delayed reward at time ranges form one week to 3 years.
  9. What they found were that were indeed subgroups of people like chip lovers (those who were tempted more strongly by chips than say beer)  who also discounted chips more strongly; similarly their discount rates was steeper for chips only and not so for beer.
  10. Thus, they conclude that discount rate depends on how tempting you find that reward and there is no one domain independent discount rate. In other words, temporal discounting is domain specific.  What is discounted steeply by a chip lover (guess, guess, its chips!)  is not discounted that steeply by beer lover and vice versa.
  11. This is important imho as it shows that if you want to counter a particular temptation or distraction, you have to  be cognizant of that domain and work within that domain.

If you find papers like these, that are at intersection of economics and psychology interesting do check out the full version that is present online.

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