Choice Over Time

Publication Year: 1992

Many of our most urgent national problems suggest a widespread lack of concern for the future. Alarming economic conditions, such as low national savings rates, declining corporate investment in long-term capital projects, and ballooning private and public debt are matched by such social ills as diminished educational achievement, environmental degradation, and high rates of infant mortality, crime, and teenage pregnancy. At the heart of all these troubles lies an important behavioral phenomenon: in the role of consumer, manager, voter, student, or parent, many Americans choose inferior but immediate rewards over greater long-term benefits. Choice Over Time offers a rich sampling of original research on intertemporal choice—how and why people decide between immediate and delayed consequences—from a broad range of theoretical and methodological perspectives in philosophy, political science, psychology, and economics. George Loewenstein, Jon Elster, and their distinguished colleagues review existing theories and forge new approaches to understanding significant questions: Why do people seem to "discount" future benefits? Do individuals use the same decision-making strategy in all aspects of their lives? What part is played by situational factors such as the certainty of delayed consequences? How are decisions affected by personal factors such as willpower and taste? In addressing these issues, the contributors to Choice Over Time address many social, economic, psychological, and personal time problems. Their work demonstrates the predictive power of short-term preferences in behavior as varied as addiction and phobia, the effect of prices on consumption, and the dramatic rise in debt and decline in savings. Choice Over Time provides an essential source for the most recent research and theory on intertemporal choice, offering new models for time preference patterns—and their aberrations—and presenting a diversity of potential solutions to the problem of "temporal myopia."

Published by: Russell Sage Foundation

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Daily life requires frequent trade-offs between costs and benefits that occur at different points in time. To sleep late or rise early, munch snacks or eat a healthy lunch, buy the snazzy sports car or the reliable sedan, get a job or go to college, risk pregnancy or use a contraceptive- these...

Part 1. Historical Overview

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pp. 1-2

1. The Fall and Rise of Psychological Explanations in the Economics of Intertemporal Choice

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pp. 3-34

In recent years, despite lingering skepticism, the influence of psychology on economics has steadily expanded. Challenged by the discovery of individual and market level phenomena that contradict fundamental economic assumptions, and impressed by theoretical...

2. Intertemporal Choice and Political Thought

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pp. 35-54

Most work on intertemporal choice has been done within philosophy, psychology, and economics. Much of it is surveyed elsewhere in this book. In this chapter I discuss how issues of myopia, deferred gratification, and self-control have been discussed within...

Part 2. General Perspectives

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pp. 55-56

3. Hyperbolic Discounting

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pp. 57-92

Of the many striking psychiatric syndromes known to man, the most dramatic is the multiple, or split, personality. Unrelated to coincidentally named schizophrenia, the ego-splitting of multiplepersonality disorder confronts its sufferers with sudden shifts of values...

4. Irrationality, Impulsiveness, and Selfishness as Discount Reversal Effects

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pp. 93-118

Imagine two rewards, one clearly preferable to the other-for instance, a large candy bar versus a small candy bar-offered to a child. As long as the large and small candy bars are offered at the same time, the child prefers the large one. Imagine that the preferred reward was not available until tomorrow. The child may well prefer...

5. Anomalies in Intertemporal Choice: Evidence and an Interpretation

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pp. 119-146

Since its introduction by Samuelson in 1937, the discounted utility model (DU) has dominated economic analyses of intertemporal choice. In its most restrictive form, the model states that a sequence of consumption levels...

6. Delay in Gratification in Children

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pp. 147-164

For almost a century the infant has been characterized as impulse-driven, pressing for tension reduction, unable to delay gratification, oblivious to reason and reality, and ruled entirely by a pleasure principle that demands immediate satisfaction (Freud, 1959)...

Part 3. Self-Control

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pp. 165-166

7. Self-Command: A New Discipline

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pp. 167-176

In a cocaine addiction center in Denver, patients are offered an opportunity to submit to extortion. They may write a self-incriminating letter, preferably a letter confessing their drug addiction, deposit the letter with the clinic, and submit to a randomized...

8. Self-Control

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pp. 177-210

Chapter 3 presents evidence that a person does not "have" a preference, in the sense of a disposition to choose that is stable unless acted upon. Viewed over even short periods of time, he is a population of successive preferences. We argue in that chapter that successively...

Part 4. Internalities

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pp. 211-212

9. Utility from Memory and Anticipation

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pp. 213-234

Although not a central focus of economics, the idea that people derive pleasure and pain from other people's experiences is widely accepted by economists. Duesenberry's "relative income hypothesis,"¹ Leibenstein's "bandwagon, snob and Veblen effects,"² Robert...

10. Melioration

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pp. 235-264

Economic theory assumes that people's choices are efficient, in the sense that they can be interpreted as, flowing from constrained maximization of a well-defined objective function. However, a growing body of evidence from both human and animal choice experiments points to...

11. The Role of Moral Sentiments in the Theory of Intertemporal Choice

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pp. 265-284

The standard neoclassical theory of intertemporal choice begins with the assumption that people are rational, which means that they act as if trying to maximize a discounted flow of utility. At least two types of rationality are distinguished according to the types of motives...

Part 5. Applications and Extensions

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pp. 285-286

12. Mental Accounting, Saving, and Self-Control

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pp. 287-330

Modigliani and Brumberg's life-cycle theory of saving (1954) (and the similar permanent income hypothesis by Milton Friedman [1957]) is a classic example of economic theorizing. The life-cycle (LC) model makes some simplifying assumptions in order to be able to...

13. A Theory of Addiction

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pp. 331-360

The complexity of addiction is mirrored in the many disciplines that study it. The chemistry of addictive substances falls in the domain of biochemistry, tolerance and withdrawal belong to physiology; various personality or hereditary predispositions, and the role of...

14. Rational Addiction and the Effect of Price on Consumption

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pp. 361-370

Legalization of such substances as marijuana, heroin, and cocaine surely will reduce the prices of these harmful addictive drugs. By the law of the downward-sloping demand function, their consumption will rise, but by how much? According to conventional...

15. Frames of Reference and the Intertemporal Wage Profile

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pp. 371-382

In this chapter, I argue that context has important implications for intertemporal consumption allocations, and for the design of the economic institutions that help support these allocations. More specifically, I will argue that intrapersonal consumption comparisons...

Index

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pp. 383-400

E-ISBN-13: 9781610443654
Print-ISBN-13: 9780871545589
Print-ISBN-10: 0871545586

Publication Year: 1992