Variations on a theme by Rachlin: Probability discounting

Area of Science:

• Behavioral Economics
• Decision Science
• Cognitive Psychology

Background:

• Previous research treated discounting of probabilistic goods as equivalent to discounting of delayed goods.
• This approach, while influential, has been identified as problematic in its original formulation.

Purpose of the Study:

• To critically evaluate the established framework for probabilistic goods discounting.
• To develop and validate a more accurate model for understanding probability discounting in intertemporal choice.

Main Methods:

• The study re-examines the conversion of probability to delay, identifying the omission of trial duration.
• It employs conjoint measurement, treating discounting as a psychophysical matching experiment.
• A model is proposed where utility of amount is multiplied by the weight of probability.

Main Results:

• The proposed model, incorporating a logarithmic transform for amount and a Prelec function for probability, accurately accounts for diverse probability discounting data.
• Empirical evidence suggests probability and delay discounting are distinct, differing in their functional relationships with variables like outcome magnitude.

Conclusions:

• The findings challenge the direct subsumption of probability discounting under delay discounting.
• A refined model offers a parsimonious and effective account of probabilistic intertemporal choice.
• Integrating this probabilistic model with delay discounting theory provides a comprehensive framework for intertemporal decision-making.