There are so many opportunities to sacrifice long-term gain for short-term pleasure: workers spend more of their earnings immediately and confront meager retirement savings years later; firms jockey for short-term gains that promote bubbles and volatility down the line; people overeat today and struggle with weight and serious health problems tomorrow.
“It’s hard to think of the future first,” says Professor Elke Weber, whose recent work in behavioral economics has investigated financial risk-taking and environmental decision making. “What we think of first is triggered by so many other factors in our environment that compete for attention, and there is so much is out there — ads, what our friends, family and colleagues are doing — that primes us to focus on immediate consumption.”
Not only do people have a tendency to think about the present at the expense of the future, but when asked to put off consumption, they demand disproportionately large rewards for doing so. “If a customer expects to receive an iPad immediately and then Apple announces there’s been a delay and offers a coupon for other products as a compensation for the wait, most people would expect a lot for that,” Weber says. “But if a customer expects to receive an iPad in three weeks and Apple offers the chance to get it sooner for a premium, most people would not be willing to pay that much more.”
“Economic theory says that people should be willing to pay as much to speed up their consumption as they would demand to slow it down,” says Professor Eric Johnson, whose research focuses on consumer and managerial decision making. But these amounts are never the same, and in fact, the difference is startling: the price people demand to slow down consumption is on average two to three times higher than the price people will pay to speed it up. The phenomenon — asymmetric discounting — has long been noted but has not been well-explained. “Understanding why asymmetric discounting happens might help us understand how to make immediate gratification look smaller and distant rewards look bigger,” Johnson says.
“Other work on decision making shows that people construct what they are willing to pay,” he explains, “meaning that our preferences are often more a matter of the way a choice is presented than deeply held beliefs or values.” For example, people share a well-documented tendency to favor the first option among many choices. In earlier research, Johnson and others proposed query theory, the idea that order matters in preferences and decision making because it affects how we query our memory for arguments for different choices; our brains give first choices more attention than subsequent choices, and we generate more arguments for them.
Like first options, the present is always directly in front of us, demanding — and receiving — attention, while the future is difficult to recall because it is so much further away. “So the question is, how do we focus attention on future rewards and move them to the forefront?” Johnson says.
Johnson and Weber, working with Kerry Milch and Hannah Chang of Columbia University, Jeff Brodscholl of Harris Interactive and Daniel Goldstein of London Business School, hypothesized that query theory could reveal whether those cognitive processes associated with memory and attention were at work in asymmetric discounting and the tendency to favor the present over the future. The researchers proposed that, because the order in which people receive their options matters, they should be able to shift the balance of support from the present to the future by prompting people to generate more evidence in favor of delaying rewards and less evidence in favor of immediate rewards.
The researchers first conducted a standard asymmetric discounting study with subjects on the Web with real money at stake. Half of the participants were offered the chance to receive a $75 gift certificate three months from that day, while half were presented with the chance to receive a $50 gift certificate immediately. Consistent with other measures of discount rates and asymmetric discounting, the subjects offered the $75 (later) option were willing, on average, to give up about $15 to receive the gift certificate right away, while those offered the $50 (now) option demanded an increase of $30 to wait three months.
Subjects had also been asked to report (by typing) the thoughts that were running through their minds as they were making their decisions. Later, after making their choices, subjects categorized their thoughts as supporting immediate consumption or supporting delayed consumption (or none or both). By counting the number of thoughts in each category, the researchers determined whether the balance of support in each instance favored immediate or delayed consumption.
As the researchers had hypothesized, subjects who had first been given the chance to receive the $75 gift certificate in the future were able to list more thoughts supporting delayed consumption. Those first offered the chance to receive a $50 gift certificate in the present reported many more thoughts that favored immediate consumption.
This lends credence to the theory that people muster the most evidence to support the first choice they are offered, drowning out other options. “We think something like this happens: someone offered $75 to spend three months in the future might first think about how their spouse’s birthday is right around that time, or maybe a holiday, and they think about what kind of nice gift they might buy,” Weber explains. “Whereas someone offered $50 to spend today might first think about that CD box set they’ve been eyeing. Subsequent ideas have little chance of overriding the first one.”
To measure how strongly such evidence influences choice, subjects in a later experiment were explicitly asked to list reasons that favored later consumption before listing reasons that favored immediate consumption, even when they were given the option of getting the $50 gift certificate right away first. When they did that, they had a harder time coming up with reasons for immediate consumption and discounted the possible larger gift certificate they could get in three months much less.
In a final experiment using the asymmetric discount set up, half of the subjects were given a list of short statements — some clearly related to the experiment, like “I don’t need the money now” or “waiting is bad,” and others clearly unrelated, such as “the mug is dusty” — and were asked to simply say, as quickly as possible, whether or not the phrase was related to the current study. The researchers found subjects most quickly identified those phrases that most closely aligned with whichever option they had been given first. “If you’ve just convinced yourself to be patient because you first considered the delayed reward, those reasons should be more top of mind than if you just convinced yourself to be impatient, because you first considered the immediate reward” Johnson says.
If, as these results suggest, memory and attention do play a key role in decision making, they also suggest that it is possible to influence the way that people make their choices. “This reinforces the significance of nudging, or choice architecture,” Johnson says. “Asked the same question in different ways, a patient person might make an impatient decision or an impatient person might make a patient decision. We can use query theory to design an intervention or treatment that people could use to make themselves more patient.”
Weber points out that we live in era that makes choice architecture easy to implement. “More and more decision making and communication occurs on the Web, where it is easier to structure a choice environment in a way that focuses people on one type of option or query over another,” she says. “So you can provide people first with information about the future when they make health or financial decisions, building decision environments that promote less impulsive choices and encourage more long-term choice.”Eric J. Johnson is the Norman Eig Professor of Business in the Marketing Division, director of the Columbia Center for Excellence in E-Business and co-director of the Center for Decision Sciences at Columbia Business School.
Elke Weber is the Jerome A. Chazen Professor of International Business in the Management Division and co-director of the Center for Decision Sciences at Columbia Business School.
Eric Johnson is a faculty member at the Columbia Business School at Columbia University where he is the inaugural holder of the Norman Eig Chair of Business, and Director of the Center for Decision Sciences. His research examines the interface between Behavioral Decision Research, Economics and the decisions made by consumers, managers, and their implications for public policy, markets and marketing. Among other topics...
Professor Weber works at the intersection of psychology and economics. She is an expert on behavioral models of judgment and decision making under risk and uncertainty. Recently she has been investigating psychologically appropriate ways to measure and model individual and cultural differences in risk taking, specifically in risky financial situations and environmental decision making and policy. Weber is past president of the Society for...
Read the Research
Elke Weber, Eric Johnson, Kerry Milch, Hannah Chang, Jeff Brodscholl, Daniel Goldstein
"Asymmetric Discounting in Intertemporal Choice: A Query-Theory Account"