The Price of Now: Economic Implications of Propensity for Immediate Gratification

Marek HUDEČEK

Bachelor's thesis

Abstract:

Myopic time-inconsistent preferences leading to self-control failure, or preference reversals in intertemporal choice where the larger, later reward is preferred over smaller, sooner reward at a distance but neglected when the smaller reward is immediately available have long been the subject of interest by philosophers, theologists, and scientists from many fields, such as psychology, economics, or neurophysiology. This thesis provides an introductory overview of contemporary normative and descriptive economic theories surrounding intertemporal choice. It presents empirical findings from both human and animal research to elucidate differences in temporal discounting across individuals, goods and time horizons to identify some of the factors which influence steepness of discounting and preference reversals. It also investigates the topic from the perspective of psychology and neuroscience, which provide alternative explanations of self-defeating behavior which do not build on an internal discount function, with special consideration given to multiple-process models. Using a framework by Story et al. 2014, I investigate a possible mechanism of interaction between habitual and goal-directed learning systems through the perspective of reinforcement learning, which could explain the habituation and subsequent overconsumption of hedonic goods, i.e., goods which provide immediate pleasure and have delayed costs. The model-free (habitual) system explains our seemingly inexplicable inability to forego immediately rewarding goods despite their long-term costs, while the model-based (goal-directed) system explains our ability to change discount rates by focusing on different information. I then review some of the proposed strategies for long-term utility maximization, as well as discuss possible directions of future intertemporal choice research.

Abstract:

Myopic time-inconsistent preferences leading to self-control failure, or preference reversals in intertemporal choice where the larger, later reward is preferred over smaller, sooner reward at a distance but neglected when the smaller reward is immediately available have long been the subject of interest by philosophers, theologists, and scientists from many fields, such as psychology, economics, or neurophysiology. This thesis provides an introductory overview of contemporary normative and descriptive economic theories surrounding intertemporal choice. It presents empirical findings from both human and animal research to elucidate differences in temporal discounting across individuals, goods and time horizons to identify some of the factors which influence steepness of discounting and preference reversals. It also investigates the topic from the perspective of psychology and neuroscience, which provide alternative explanations of self-defeating behavior which do not build on an internal discount function, with special consideration given to multiple-process models. Using a framework by Story et al. 2014, I investigate a possible mechanism of interaction between habitual and goal-directed learning systems through the perspective of reinforcement learning, which could explain the habituation and subsequent overconsumption of hedonic goods, i.e., goods which provide immediate pleasure and have delayed costs. The model-free (habitual) system explains our seemingly inexplicable inability to forego immediately rewarding goods despite their long-term costs, while the model-based (goal-directed) system explains our ability to change discount rates by focusing on different information. I then review some of the proposed strategies for long-term utility maximization, as well as discuss possible directions of future intertemporal choice research.

Keywords

intertemporal choice, temporal discounting, delay discounting, hyperbolic discounting, behavioral economics, utility maximization, self-control, addiction

Language used: English

Date on which the thesis was submitted / produced: 18. 4. 2024

Thesis defence

• Supervisor: Mgr. et Mgr. Jan Stoklasa, Ph.D.

Palacký University Olomouc

Faculty of Arts

Bachelor programme / field:
Economic and Managerial Studies / Economic and Managerial Studies