Intertemporal choice – toward an integrative framework

Abstract

Intertemporal choices are decisions with consequences that play out over time. These choices range from the prosaichow much food to eat at a meal -to life-changing decisions about education, marriage, fertility, health behaviors and savings. Intertemporal preferences also affect policy debates about long-run challenges, such as global warming. Historically, it was assumed that delayed rewards were discounted at a constant rate over time. Recent theoretical and empirical advances from economic, psychological and neuroscience perspectives, however, have revealed a more complex account of how individuals make intertemporal decisions. We review and integrate these advances. We emphasize three different, occasionally competing, mechanisms that are implemented in the brain: representation, anticipation and self-control . 55 56 57 58 59 60 61 62 63 64 65 66 67 68 Economic, psychological and neuroscientific perspectives on intertemporal choice 70Intertemporal choices -decisions with consequences that play out over time -are important and ubiquitous. Decisions about spending, investments, diet, relationships, fertility, crime and education all contain intertemporal tradeoffs. In this paper, we discuss interrelated perspectives on intertemporal choice from the fields of economics, psychology and neuroscience. 73 74 75 76 77Until recently, the main contribution of economics to the study of intertemporal decisions was modeling. For nearly 80 years, economists have analyzed intertemporal decisions using the discounted utility (DU) model, which assumes that people evaluate the pleasures and pains resulting from a decision in much the same way that financial markets evaluate losses and gains, exponentially 'discounting' the value of outcomes according to how delayed they are in time. DU has been used to describe how people actually make intertemporal choices and it has been used as a tool for public policy. Policy decisions about how much to spend on research and development, health and education all depend on the discount rate used to analyze the decision. Indeed, recently the discount rate has proven to be a key parameter in the policy debate about global warming [1]. 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 The main contribution of psychology has been to identify, through empirical research, psychological mechanisms underlying intertemporal choice. For example, George Ainslie's research on the structure of time discounting posed the first serious challenge to the DU model -specifically to the assumption that people discount the future exponentially [2,3]. The concept of 'hyperbolic time discounting' (explained below) can be considered the first observed pattern of behavior that is inconsistent with DU -a DU 'anomaly'. Subsequent research by both psychologists and economists has identified a wide range of additional anomalies [4][5][6][7][8][9][10][11][12]. Economists have responded to these findings by constructing new models of intertemporal choice, which incorporate psychological insights,...

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