Special Session Summary Making Decisions About the Future: Psychological Drivers of Intertemporal Choice

Citation:

Gal Zauberman and Rebecca K. Ratner (2003) ,"Special Session Summary Making Decisions About the Future: Psychological Drivers of Intertemporal Choice", in NA - Advances in Consumer Research Volume 30, eds. Punam Anand Keller and Dennis W. Rook, Valdosta, GA : Association for Consumer Research, Pages: 200.

Advances in Consumer Research Volume 30, 2003     Page 200

SPECIAL SESSION SUMMARY

MAKING DECISIONS ABOUT THE FUTURE: PSYCHOLOGICAL DRIVERS OF INTERTEMPORAL CHOICE

Gal Zauberman, The University of North Carolina

Rebecca K. Ratner, The University of North Carolina

Consumer decision-making often requires individuals to make judgments about what they would like to experience at some point in the future. How do individuals make such decisions? Research on intertemporal choice has documented a wide variety of empirical phenomena that are inconsistent with the economic models typically used to represent such behavior (which assumes that decision makers rationally make decisions to maximize their future utility). Recently, researchers have attempted to go beyond cataloging irregularities by trying to understand the underlying psychology. The research presented in this session adopts that goal. We attempt to provide insight about the psychological mechanisms that underlie biases in consumer decisions about what will maximize their utility in the future. This session includes three papers that address this common theme. These papers challenge existing explanations of intertemporal choice phenomena that have attracted considerable intellectual attention among psychologists and economists. Specifically, these papers extend current knowledge in three ways: (1) by examining the implication of outcome bias for future decisions made by consumers; (2) by challenging the assumed relation between declining discount rates as an empirical regularity and hyperbolic discounting as a psychological phenomenon; and (3) by exploring the drivers of observed differential time preferences for different resources to be experienced in the near versus distant future.

The first paper (by Rebecca Ratner and Kenneth Herbst) pointed out that to understand intertemporal choices, one must recognize how consumers incorporate their affective reactions to the outcomes of prior decisions. The authors provided evidence that with repeated choices, consumers are overly focused on their affective reaction to past events and fail to adequately focus on the future probabilities of success of the different choice alternatives. Results indicate that because consumers feel regret when decisions lead to disappointing outcomes, consumers making decisions about what to consume in the future will avoid options that previously generated a unfavorable outcome, even when those options are more likely to produce a better outcome than are the alternatives.

The second paper (by Daniel Read and Shane Frederick) critically examined the standard interpretation of hyperbolic discounting and offered a new explanation that can account for previous findings typically attributed to hyperbolic discounting. First, the authors demonstrated that much of the evidence for declining impatience is attributable to the length of the intervals used in the elicitation procedures, rather than the temporal position of the intervals per se. Second, they provided evidence that decision makers reject declining impatience when making side-by-side evaluations of alternatives with different delays, though they actually endorse other anomalies in intertemporal choice, such as the magnitude effect and the sign effect.

The third paper in the session (by Gal Zauberman and John Lynch) continued to challenge standard explanations of time discounting behavior. The authors argued that apparent discount rates are a function of supplies of "slack" of different resources (e.g., time vs. money), which in turn influence whether an investment causes one to fail to attain "goals" associated with other uses of that resource. When considering events in the very near term, investments of incremental time will cause one to fail to attain other short-term goals, but only if little slack exists. If decision makers cannot imagine the same level of competition for their time in the future, they will appear to "discount" steeply. This will not happen if consumers perceive no difference in resource slack between now and the future. The authors presented time and money as resources with deferential slack and showed how slack can explain different levels of discounting for time and money as well as a reversal of this effect.

Collectively, the three papers in this special session offered new insights about the psychological mechanisms underlying consumers’ decisions about what they want to consume in the future. The discussant, Rick Larrick, provided an insightful integration of the three papers and outlined how they inform and qualify the findings of previous research. He also noted some of the ways in which the three papers offered diverging perspectives on the common theme of the session. The discussant also engaged the audience by inviting questions, comments and ideas for future research.

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