38 Pages Posted: 5 Jan 2012
Date Written: January 4, 2012
Intertemporal tradeoffs are ubiquitous in decision making, yet preferences for current versus future losses are rarely explored in empirical research. Whereas rational-economic theory posits that neither outcome sign (gains vs. losses) nor outcome magnitude (small vs. large) should affect delay discount rates, both do, and moreover they interact: while large gains are discounted less than small gains, large losses are discounted more than small losses. This interaction can be understood through a reconceptualization of fixed-cost present bias, which has traditionally described a psychological preference for immediate rewards. First, our results establish present bias for losses, where it describes a psychological preference to have losses over with now. Present bias thus predicts increased discounting of future gains, but decreased (or even negative) discounting of future losses. Second, since present bias feelings do not scale with the magnitude of possible gains or losses, they play a larger role, relative to other motivations for discounting, for small magnitude intertemporal decisions than for large magnitude intertemporal decisions. Present bias thus predicts less discounting of large gains than small gains, but more discounting of large losses than small losses. The present research is the first to demonstrate that the effect of outcome magnitude on discount rates may be opposite for gains and losses, and also the first to offer a theory (extending present bias) and process data to explain this interaction. The results suggest that policy efforts to encourage future-oriented choices should frame outcomes as large gains or small losses.
Keywords: temporal discounting, delay, time preference, impatience, dread
Suggested Citation: Suggested Citation
Hardisty, David J. and Appelt, Kirstin C. and Weber, Elke U., Good or Bad, We Want it Now: Fixed-Cost Present Bias for Gains and Losses Explains Magnitude Asymmetries in Intertemporal Choice (January 4, 2012). Available at SSRN: https://ssrn.com/abstract=1979828 or http://dx.doi.org/10.2139/ssrn.1979828