03_P & B - Chapter 04

• Der "discout rate" ist je nach Situation und Person unterschiedlich
• Ein niedriger "discount rate" bedeutet eine höhere Präferenz für die Gegenwart
  -> Eine höhere Entschädigung oder ein höheres, künftiges Angebot ist erforderlich, um auf den heutigen Konsum zu verzichten
• Ungeduldige Menschen benötigen eine höhere Entschädigung oder Interesse, um auf den heutigen Konsum zu verzichten

z.b. viel mehr Schokolade

Frequent trade-offs (Abwägungen) between the costs and benefits at different points in time

Decisions = «intertemporal choices»

(Viele ökonomische Entscheidungen sind intertemporal (zwischenzeitlich), das heißt, gegenwärtige Wahlmöglichkeiten bei der Entscheidungsfindung beeinflussen auch die Wahlmöglichkeiten in der Zukunft)

• Economics: Discounted Utility Theory
• Behavioral Economics: Hyperbolic Discounting
• Psychology: Temporal Construal

people want to be compensated for giving up something today because future consumption does not provide equal value compared to present consumption

Future consumption is discounted with a certain discount rate

The discount rate determines how strongly the monetary value or utility is reduced from a consumer’s subjective value perception, i.e. if s/he does not receive the value today but at a
later point in time

Value present consumption = value future consumption + discount rate

• Consumption independence
• Diminishing marginal utility
• Utility independence
• Positive time preference
• Stationary instantaneous utility
• Constant discounting and time consistency
• Integration of new alternatives with existing preferences
• Independence of discounting from consumption

A person’s utility is independent of her or his consumption in any other time period
e.g. if a person ate pizza yesterday it has no impact on the choice of food today

Utility across different consumption periods is determined by the discounting rate alone which assumes positive time preference, i.e. people prefer to consume now than later

-> Consumption period refers to a time frame within which two or more options are
compared, e.g. dinner today vs. dinner tomorrow

The initial utility generated by an activity is the same across all consumption periods
e.g. Pizza has always the same initial utility, regardless of when the choice is made

As a person consumes a product, the satisfaction or utility that s/he derives from the product decreases as they consume more and more of that product.
->  People are motivated to spread the consumption of a product over time to increase the overall utility. For example, eat a chocolate bar and spreading the eating over one or several days

Constant discounting refers to the fact that delaying or accelerating two or more dated outcomes by a common amount should not change preferences between the outcomes

-> Allows a person’s time preference to be summarised in a single discount rate

Constant discounting implies that a person's intertemporal preferences are time-consistent, which means that later preferences "confirm" earlier preferences

People evaluate new options by integrating them with the existing choice set. Integration means that option X is not evaluated in isolation, but in light of how it changes the
person's aggregate consumption in all future periods

• Makes sense for normative models, i.e. models describing how people should behave, but it does not reflect descriptive models, i.e. how people actually behave:
  • People may not have well-formed plans and thus choice sets
  • People are unable or unwilling to re-compute the optimal choice within the choice set for every new option

People choose the option next week because they discount utility

People are impatient short-term:
Only prepared to defer consumption for high rate -> Preferences are biased towards the present

People are more patient long-term: demand a lower compensation in comparison to deferring consumption (Pralinen-Beispiel)

Quasi-hyperbolic discounting: 

• Reflects currently biased preferences
• Does not assume time consistency

Present-skewed preferences: Quasi-hyperbolic discounting has a high-shortterm discount rate and a lower long-term discount rate

No time consistency assumption: the passage of time may change preferences

-> Hyperbolic discounting makes it difficult to quit choice today for future benefits 

Choice preference is guided by weight attached to high-level and low-level construals

Construal refers to the processing of information

High-level construal refers to coherent, essential, superordinate, and meaning-oriented «why» features of objects or choice options

Low-level construal refers to specific, incidental, subordinate, and process-oriented «how» features of objects or choice options

long-run (patient) self:

• Tempted to maximize benefit as time elapses
• Resists current temptations if they clash with long-term benefits

short-run (impulsive) selves:

• Sequential «selves» that only exist for a short period of time
• Each self only cares about the immediate experience
• Hedonic, impulsive, and irrational behavior because behavior does not maximize utility long-term

The strength model: parable of the fatiguing muscle

• Handling of stress, regulation of negative emotions, and resisting temptations demand self-control
   
• Leads to ego depletion:
  Self regulation resource is reduced or even entirely wasted
   
• Self-control requires energy: parable of the fatiguingmuscle

train muscle (so that it can perform better) or relieve msucle (so that it can perform
well when necessary)

• Habit formation
• Reward substitution
• Self-control contracts