Research on intertemporal decisions has shown that people are heavily biased toward the present. A particularly important and robust finding, hyperbolic discounting, demonstrates that the rate at which an outcome is discounted over time (delay discounting) decreases as the time horizon gets longer. For example, prior research has shown that when evaluating a lottery, consumers required $30 to wait for three months (a discount rate of 277%); however, the same people required only $60 to wait for one year (a discount rate of 139%) and $100 to wait for three years (a discount rate of 63%).
Most behavioral accounts of intertemporal inconsistencies (hyperbolic discounting) have two things in common: (1) They assume that the time horizon incorporated into these decisions is the objective time horizon (as opposed to subjective perceived time), and (2) they attribute present bias to changes in the valuation of outcomes at different points in time. Thus, these theories overlook the possibility that how people perceive time affects the valuation of outcomes over time.
The current research examines consumers’ subjective perceptions of prospective duration (e.g., how long a given delay is perceived) and the implications of such perceptions for intertemporal trade-offs, especially the degree of hyperbolic discounting. The authors show that participants’ subjective perceptions of prospective duration are not sufficiently sensitive to changes in objective duration, consistent with psychophysical principles. For example, in comparing a one-month and a three-month delay in receiving a rebate, participants do not perceive the latter as three times longer than the prior. Instead, they perceive a three-month delay as being only 1.5 times longer than a 1-month delay. More important, the authors show that this lack of sensitivity can affect the observed intertemporal inconsistencies, which can affect a variety of phenomena, ranging from saving behavior and overspending to obesity.
Experiments 1 and 2 examine participants’ subjective time estimates and their time preferences. The authors asked participants’ to indicate their subjective perception of given time horizons on a continuous line scale and to indicate how much they would require to delay outcomes over various length of time. Participants did not perceive time objectively and linearly; instead, they had a nonlinear and concave perception, consistent with psychophysical principles. More important, intertemporal inconsistencies (i.e., hyperbolic discounting) persisted only if objective time was used in the calculations but not when subjective time was used.
Experiments 3 and 4 explicitly examined the moderating effects of making duration salient on hyperbolic discounting. When duration was made more salient, participants’ perception of time not only became more linear (i.e., approximates objective time) but also led to more consistent preferences over time.
In conclusion, the authors propose and demonstrate that consumers’ subjective perception of changes in time duration is not adequately sensitive to objective changes in time horizon, consistent with psychophysical principles. Furthermore, people no longer show hyperbolic discounting when their subjective time perception is considered. The results suggest a new perspective for explaining consumer intertemporal behavior that has implications for decision theory and practice.
Biography
Gal Zauberman is Associate Professor of Marketing in the Wharton School at the University of Pennsylvania. His academic background includes a BA with highest honors in Psychology and Economics from the University of North Carolina at Chapel Hill (1994) and a PhD in Marketing from Duke University (2000). Professor Gal Zauberman studies consumer behavior, time in judgment and decision making, and memory for emotions and choice. In his research, Professor Zauberman focuses on factors that affect people’s evaluations, preferences, and choice, with specific interest in the role of time in judgment and decision making. His research has been published in top-tier academic journals, including Journal of Consumer Research, Journal of Experimental Psychology: General, Journal of Marketing Research, Management Science, and Psychological Science, and has received international media coverage, including the New York Times and Scientific American, among others. For more information, see http://marketing.wharton.upenn.edu/people/faculty.cfm?id=55.
B. Kyu Kim is a doctoral student in the Wharton School at the University of Pennsylvania. His academic background includes a BA in Psychology (2001) and an MBA in Marketing (2004) from Seoul National University, Korea.
Selin Malkoc is Assistant Professor of Marketing at Washington University in St. Louis. She holds a BA in Business Administration from Bilkent University, Turkey, and a PhD in Marketing from the University of North Carolina’s Kenan-Flagler Business School. Malkoc’s research specialties include judgment and decision making, intertemporal choice, the role of consumer mind-sets, and representations and intuitive decision making. Her research has appeared in Journal of Marketing Research and Psychological Science, among other outlets. For more information, see http://www.csom.umn.edu/marketinginstitute/smalkoc.
James R. Bettman is Burlington Industries Professor of Business Administration and Professor of Psychology and Neuroscience at Duke University. He received his BA in Mathematics and Economics and his PhD in Administrative Sciences from Yale University. His research focuses on consumer information processing and decision making, constructive preferences, how decision makers adapt, effects of emotion and stress on decision making, and the integration of conscious and nonconscious processing in decision making. Professor Bettman’s publications include two books, An Information Processing Theory of Consumer Choice and The Adaptive Decision Maker; a monograph, Emotional Decisions: Tradeoff Difficulty and Coping in Consumer Choice; and more than 100 research papers. Professor Bettman has been the chair or cochair for 34 doctoral students in marketing. He has received the Paul D. Converse Award, the American Marketing Association/Irwin/McGraw-Hill Marketing Educator of the Year Award, the SCP Distinguished Scientific Achievement Award, and the Leo Melamed Prize for outstanding scholarship by business school faculty.
Journal Marketing Research, Volume 46, Number 4, August 2009 View Table of Contents.