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Measuring Delay Discounting in Humans Using an Adjusting Amount Task
07:47

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Published on: January 9, 2016

Normative arguments from experts and peers reduce delay discounting.

Nicole Senecal1, Teresa Wang, Elizabeth Thompson

  • 1Department of Psychology, University of Pennsylvania 3720 Walnut St, Philadelphia, PA 19104.

Judgment and Decision Making
|April 19, 2013
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Summary

People discount future money significantly, often due to not knowing the best financial strategy. Educating them on normative strategies can reduce this discounting, but other factors still contribute to high rates.

Keywords:
Intertemporal choicebehavioral economicsfinancial education

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Area of Science:

  • Behavioral Economics
  • Decision Science
  • Cognitive Psychology

Background:

  • Individuals consistently devalue future outcomes when faced with tradeoffs.
  • High discount rates for monetary outcomes exceed market interest rates, a puzzling economic phenomenon.
  • The normative strategy for intertemporal monetary decisions is not widely understood.

Purpose of the Study:

  • To investigate if a lack of knowledge about the normative strategy explains high discount rates.
  • To quantify the impact of normative strategy education on discount rates.
  • To explore the influence of peer versus expert advice on financial decision-making.

Main Methods:

  • Experimental design involving participants making intertemporal monetary decisions.
  • Intervention using a "financial guide" to educate subjects on normative strategies.
  • Assessment of discount rates before and after education, with follow-up assessments.
  • Comparison of "expert" advice versus peer-generated advice.

Main Results:

  • Nearly half of subjects initially lacked knowledge of the normative strategy.
  • Educating subjects on the normative strategy reduced discount rates by up to 85%.
  • The reduction in discount rates persisted for at least one month.
  • Peer advice was as effective as expert advice in influencing discount rates.

Conclusions:

  • Lack of knowledge regarding the normative strategy is a significant contributor to high discount rates.
  • Normative arguments effectively reduce discount rates, demonstrating the impact of financial literacy.
  • Despite reductions, other factors still contribute to persistent high discount rates, requiring further investigation.