טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentShavit Yael
SubjectTime Money Preferences in Decisions from Experience
DepartmentDepartment of Industrial Engineering and Management
Supervisors Dr. Kinneret Tedorescu
Dr. Yafim Roth


Abstract

Many everyday decisions involve a tradeoff between a smaller and sooner reward (i.e., SS) or a lager yet later one (i.e., LL). For example, an hourly paid worker has to decide whether to go home after eight-hour shift load or to work additional hour for additional pay. These types of decisions are referred to as “intertemporal decision making”. The classical exponential model assumes a constant rate of time discounting, yet previous research show three inconsistencies with this assumption: The common difference and the magnitude effects flip people's preference from smaller and sooner rewards to larger yet later ones, while the delay duration effect increase preferences towards the smaller yet sooner option. These violations are mostly based on studies using descriptive hypothetical tradeoffs with large scales of durations and rewards with no actual experience of delays. However, many real life choices involve much shorter durations and smaller rewards. Therefore, the aim of the current series of experiments was to test people's intertemporal choices with short actual repeated delays (seconds) and small payoffs (cents), with and without description and feedback. We conducted three intertemporal decision-making experiments, the first one (n=113) was a classic descriptive study with small scales of rewards and delays in order to test people's choices when they are faced with small scales intertemporal decisions. We found evidence for the common difference and delay duration effects. We also found evidence for sensitivity to reward size but not for the length of duration.  In the second study (n=84) we used the same descriptive decisions, but we added actual repeated delays to each trial. We found that adding delays decreased people's willingness to wait. However, we did witness the common difference, magnitude and delay duration effects. In our last study (n=100) we removed the description of the tradeoffs and used a purely experiential environment. The results show that the three effects appear in this type of environment as well. We also found a small increase in the willingness to wait, most likely as a result of exploration. In both the second and the third studies, in which actual experience was involved, we found sensitivity to both the size of reward and length of delays.

Overall, this series of studies demonstrates the robustness of the three known effects. In addition, the results suggest a new description-experience gap, with respect to intertemporal choices. When a choice is based solely on description participant’s preference for the larger yet later reward was over 60%. However, when experience is added to the descriptions the willingness to choose the larger later option reduced to 19%. When the description is removed the preference for the larger later alternative rose to 33% probably due to exploration. We also found that participants were sensitive to the size of the reward both in hypothetical and real monetary questions. However, they were only sensitive to length of duration in the experiments where they were actual delays. Accordingly, the current results suggest that any patience evidenced in descriptive studies should be taken with caution.