Concentration Bias in Intertemporal Choice

Abstract

Many intertemporal trade-offs are unbalanced: while the advantages of options are concentrated in a few periods, the disadvantages are dispersed over numerous periods. We provide novel experimental evidence for “concentration bias”, the tendency to overweight advantages that are concentrated in time. Subjects commit to too much overtime work that is dispersed over multiple days in exchange for a bonus that is concentrated in time: concentration bias increases subjects’ willingness to work by 22.4% beyond what standard discounting models could account for. In additional conditions and a complementary experiment involving monetary payments, we study the mechanisms behind concentration bias and demonstrate the robustness of our findings.

Salience

“…Other proposals also incorporate contrast-based distortions in choice.Koszegi and Szeidl (2013) present a model of focusing in which people overweight the attribute with the largest range in the choice set Dertwinkel-Kalt et al (2021). offer supporting evidence for that model's predictions in intertemporal choice.Bushong et al (2020) capture the opposite idea that differences along the attribute with the largest range are underweighted due to perceptual normalization and offer supporting evidence for this effect.…”