In this project the Principal Investigators will exam the qualitative differences between discounting functions in intertemporal choice. Mazur (1987) proposed the hyperbolic discounting function. This type of function implies frequently observed dynamic inconsistency - a preference reversal whereby the agent initially prefers the larger later reward but later changes to prefer the smaller sooner reward . Subsequent researchers have proposed alternative discounting functions to explain this and other empirical regularities. The hyperbolic discounting function is still the most widely accepted model; however, comparisons of different models have not convinced all researchers that it is the best descriptive theory. This may be because previous model comparisons have focused on quantitative differences among models, especially the curve fits between each model and data. Strictly speaking, a curve fit does not provide a decisive conclusion about whether the model is qualitatively correct or not. It only tells which function fits the data better than others. The current research aims to provide more decisive evidence by highlighting qualitative differences between models. To investigate the qualitative predictions of different models of intertemporal choice, the investigators have developed a new modeling framework that can analyze choice patterns across different delays, reward magnitudes, and individual parameters based on the specific mathematical models.
In terms of broader impacts, this research will benefit the general public and practitioners who want to promote self-regulation by providing a better understanding of the conflicts between short-term temptations and long-term benefits. It has implications in a variety of arenas, such as retirement planning, addiction treatment, healthy behavior change, and procrastination.
The preference reversal phenomenon, the tendency to initially prefer a larger later option but later reverse one’s preference to the smaller sooner option, has captured the interest of psychologists and economists because it depicts impulse control failure in daily life. The leading theoretical account of this preference reversal phenomenon has been the hyperbolic discounting function, a theory that originated from Matching Law principle. In addition to explaining the preference reversal phenomenon, the hyperbolic model also has been used to gauge the level of impulsiveness (also known as discount rate), differentiating those who wait for larger later options from those who prefer proximal options. The measured discount rate from people has been positively correlated with many impulsive behaviors, including smoking, obesity, and poor credit scores. The current study, however, demonstrates that the hyperbolic model fails to account for the relationship between the preference reversal phenomenon and level of impulsivity. A model simulation and an empirical experiment (Fig. 1) show that the hyperbolic discounting function does not accurately predict the relationship between preference reversal and different levels of discounting. Findings were better fit by an alternative model that incorporates subjective time sensitivity and predicts that extreme impulsiveness will lead not to the preference reversal but rather to consistent preference for proximal rewards (Fig. 2). This alternative model not only provides better empirical predictions but also serves as a clearer explanatory model than the hyperbolic function.
