It makes so much sense it’s almost infuriating. Temporal discounting is our natural tendency to want things now rather than later, even when we know that if we choose to have our rewards later we’ll get way more than what we’ll have now. And how many of us have not succumbed to this at one time or another? None, right? How many well-intentioned plans for saving and investing have fallen victim to the twin evils of impulse and temptation?
Don’t fret. There is much more to it than just your weak resolve. A whole army of researchers want to find out more about this phenomenon. Perhaps they want to find new ways of exploiting you? Well, if you understand what temporal discounting is and how it affects your financial behavior you’ll be one step ahead of those who’ll try take advantage of this very human trait.
Read on to be forewarned and forearmed.
I Want it Now! — Temporal Discounting in the Primate Brain
In an experiment with rewards that recorded primates’ neuronal activity, the
quantity of the reward and the delay to receive it have equivalent effects on the animal subjects. When economists talk about temporal discounting, they talk about it in terms of what is called the discount rate. The discount rate is the percentage of money that you would have to be offered after a time period to convince you to save. Alternatively it could also be viewed as how much less — by percentage — your money is worth to you in say a year than it is right now. Well, it seems like monkeys are way more impatient than humans and are less willing to wait. The interesting thing is that temporal discounting isn’t unique to humans.
Warped Sense of Time Heightens Temptations
This glitch in our brains may wreak more havoc in our lives and in society than any other. Scientists think this trait may have been programmed into us by evolution at a time when the environment, with its many threats to our survival, favored those who grabbed whatever they could whenever they could get it.
Impulsivity Due to Distortions in Time
In an experiment subjects were asked how much they would need to be paid to wait to use in the future a $75 gift certificate that was valid today. The expression of the time that they needed to wait was then varied (years, months, random timelines). Researchers noted that perception of time is sufficient to explain the tendency for subjects to prefer to act impatiently now but more patiently in the future. Instead of reflecting a lack of cognitive control, this apparent impulsiveness appears to be related to our perception of time itself.
The Role of Age and Income
A Washington University study concludes that lower income adults showed a greater degree of temporal discounting than either upper income older adults or upper income younger adults but there were no age differences in discounting between upper income groups. Finding suggest that impulsivity in decision making declines rapidly in young adulthood and stabilizes in the 30s. Further, age and income appear to interact in determining impulsivity.
Power reduces temporal discounting
Researchers at the University of Southern California explored the relationship of power to temporal discounting. They found out that the experience of power enhances one’s connection with the future self, resulting in reduced temporal discounting. Participants assigned to high-power roles are less likely than others to display temporal discounting, priming power reduces temporal discounting in monetary and non-monetary tasks and, further, that connection with the future self mediates the relationship between power and reduced discounting. They also showed that experiencing a general sense of power in the workplace predicts actual lifetime savings.
Sixth-graders validate temporal discounting theories.
Journal of Applied Behavior Analysis
A study was performed with sixth grade students to determine whether increasing delays were associated with discounted reward values in the hypothetical choices presented to participants. The study validated previously held beliefs on responsiveness to immediate and delayed rewards. However, it also concluded that behavior consistent with self-control can be reinforced and developed.
Eat, Lust, Pay: How to Gain More Self-Control
Some things that you can do to help you gain self-control:
-
Put off the decision. Waiting dampens your need. Step away from the situation for just a few minutes, so you can be more level-headed about temptation and provocations.
-
Visualizing long-term consequences will make them more immediate, and help you offset your bias toward the short-term benefit of buying. Make the future costs more concrete.
-
Write things down. The long-term consequences of our actions are often vague, so writing them out helps you hash out the details.
-
Listen to classical music, and slow down. Environmental cues such as fast-paced music accelerates your perception of time, leading you to focus on the present and discount the future.
-
Switch your environment. Out of sight, out of mind.
-
When tempted to spend your retirement savings, think of your future self in the way you would a child or elderly parent: as someone who depends on you. Thinking this way helps leverages your sense of obligation toward your elder self, and can help motivate the current you to boost your retirement savings rather than spend them.
Are you a frequent “victim” of temporal discounting?
How much self-control do you have?
Why is FinancesOnline free?
Leave a comment!