Temporal discounting

Temporal discounting (also known as delay discounting, time discounting, time preference)^[1] refers to the tendency of people to discount rewards as they approach a temporal horizon in the future or the past (i.e., become so distant in time that they cease to be valuable or to have additive effects). To put it another way, it is a tendency to give greater value to rewards as they move away from their temporal horizons and towards the "now". For instance, a nicotine deprived smoker may highly value a cigarette available any time in the next 6 hours but assign little or no value to a cigarette available in 6 months.^[2]

This term is used in intertemporal economics, intertemporal choice, neurobiology of reward and decision making, microeconomics and recently neuroeconomics.^[3] Traditional models of economics assumed that the discounting function is exponential in time leading to a monotonic decrease in preference with increased time delay; however, more recent neuroeconomic models suggest a hyperbolic discount function which can address the phenomenon of preference reversal.^[4]

Preference reversal

Offered a choice of $100 today and $110 in a month, subjects might prefer to have $100 today. However, if the delay for both rewards is increased by a year (i.e., subjects are offered a choice of $100 in a year or $110 in a year and one month), they might prefer the $110.

References

^ Doyle, John R. (2013). "Survey of time preference, delay discounting models". Judgment and Decision Making 8 (2): 116–135.

^ Bickel, W. K.; Odum, A. L.; Madden, G. J. (1999). "Impulsivity and cigarette smoking: delay discounting in current, never, and ex-smokers". Psychopharmacology 146 (4): 447–454.

^ Takahashi T., Hadzibeganovic T., Cannas S. A., Makino T., Fukui H., Kitayama S. (2009). "Cultural neuroeconomics of intertemporal choice". Neuro Endocrinol. Lett. 30 (2): 185–91.

^ Green, Leonard; Myerson, Joel (2004). "A Discounting Framework for Choice With Delayed and Probabilistic Rewards.". Psychological Bulletin 130 (5): 769–792.

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Temporal discounting