We’ve all done the elementary school math story problem: Would you rather have $10,000 right now, or a penny doubled every day for a month? Well, in the end, those of us who were greedy enough to take the $10,000 right up front ended up poorer than those who took the penny.
This problem seems silly to us though. Now what about this one. Would you rather take $1,000 right now or $4,000 three years from now? Chances are, you chose the immediate cash. Psychologists use the term “delay discounting” to describe our inability to resist the temptation of a smaller immediate reward in lieu of receiving a larger reward later. Most people choose the smaller, more immediate reward over the larger “patience is a virtue” reward.
And no matter what the context, discounting stems from three factors: a bias for the present; uncertainty; and projected resources. We are a people who thrive on instant gratification; that’s one reason we love TV so much. It is also a contributing factor to the current economic crisis (and debt in general).
“When we might gain, it’s simple: Those three factors make us want that gain right away. When we might lose, there’s a conflict,” said David Hardisty, M.Phil. “We want to get the loss behind us, yet we also want to put it off — because we think it will be easier to pay later or the problem will somehow go away.”
The study consisted of three studies with 65, 118 and 146 participants, respectively. Researchers presented participants with a series of situations, forcing them to choose between different outcomes involving air quality, mass transit, garbage pile-up from a workers’ strike, and monetary gain and loss (for example, paying a parking ticket in a smaller amount now or a larger amount later).
As examples of the various scenarios presented, participants picked:
- 21 days of clean air now over 35 days of clean air next year;
- a short-term fix for mass transit now, instead of a long-term fix later;
- a $250 lottery win now over a $410 win a year later.
Participants downplayed future gains significantly more than future losses. Employing a formula used by economists, “with our particular scenarios and measurement techniques, [we] found annualized discount rates that averaged out to roughly 34 percent for monetary and environmental gains and 9 percent for losses,” Hardisty said.
These findings come as good news to policy makers and researchers. It shows that a subtle change in semantics – homeowners could be told that better insulation will help them avoid losing money to high utility bills rather than that it will help them save – could be strikingly influential. This small change would simply frame environmental decisions as ways to avoid future loss rather than realize future gains. And that might be enough.
Source: Science Daily
Photo Credit: smif via flickr under Creative Commons License