Cognitive Resources and Affect in Time Discounting

Massachusetts Institute Of Technology, Cambridge MA

Investigators

Abstract

Drazen Prelec Cognitive Resources and Emotion in Time Discounting It is a basic finding in economics and psychology that people heavily undervalue or discount future events, and we can see evidence of it in many areas of our lives. In financial decisions, many of us find it hard to start to save money for the distant prospect of our retirement or for our children's education. We fail to take proper care of our health, putting off exercise, eating unhealthy snacks, avoiding vaccinations or the dentist, smoking a cigarette or having unprotected sex. Although a great deal of research has demonstrated such discounting, very little is known about why it occurs. Understanding the psychological mechanisms of undervaluation is the aim of the current research. Preliminary findings indicate that the valuation of a future may combine two processes, an initial a-temporal rapid affective judgment followed by slower cognitive adjustment that incorporates temporal information. Pilot data indicate that operations that disrupt the cognitive component (like being forced to decide under time pressure or while distracted by another task) reduce the amount of discounting. Somewhat surprisingly, giving people more time to think things through increases rather than decreases the appeal of immediate rewards. We interpret these changes in valuation in light of the psychological literature on the role of affect in decision making. This literature suggests that, while thoughts may be complex, slow and effortful, feelings are simple, rapid and effortless. It is also true that, in making judgments, people will use their feelings as information. Therefore, initial judgments of people or objects are often based first on their feelings about the object and then adjusted more slowly or modified by their thoughts. In our pilot studies, the valuations of far future events changed when cognitive resources were restricted, suggesting that these valuations had a cognitive component that is disrupted by the resource manipulation. The valuations of the near future events were relatively immune to the restriction of cognitive resources, suggesting these valuation judgments are more feelings-based. With the proposed research, we will extend these preliminary findings to real outcomes and look more closely into the role of affect in the valuation process. These findings will have significant implications for a wide range of decisions. From a normative standpoint, the novel implication of the research is that thinking harder or more thoroughly about a decision may perversely increase the rate at which future outcomes are discounted. The disregard of future outcomes shown therefore may not be simply a case of cognitive myopia, as is commonly thought. On the account proposed here, it is the result of an active cognitive process that counteracts the initial emotional response to a future event.