Delay Discounting

Delay discounting is a behavioral economics observation that a reward’s value is associated with the postponement of its release period. A reward loses its value when the waiting period for its receipt is too long. The subjects prefer smaller immediate rewards over the more significant rewards receivable later on.

Humans tend to make impulsive decisions based on value comparisons over time. phenomenon is widely used as an experimental task to identify such behaviors in individuals. Additionally, it is a crucial gauge for understanding the impact of the relationship between probabilities, gains, and losses over time on human choices. 

Delay discounting refers to an experiment that gauges the general behavior of species to select immediate rewards over deferred rewards receivable after a certain waiting period. It is a crucial cognitive process in 

analyzing human behavior when individuals have two choices: either to pick smaller rewards today or enjoy more considerable benefits later. However, species generally tend to make impulsive decisions and prefer small rewards with no waiting time rather than larger rewards received in the future. 

The following graph shows how the value of rewards changes with their receipt deferment:

Thus, in the above graph, the value of a reward decreases with the delay in its receipt. Some of the critical factors responsible for such human behavior are as follows:

1. Psychological Factors: Human beings are psychologically driven by impulsivity, emotions, and risk tolerance levels. Thus, they behave accordingly when put into a particular decision-making situation.
2. Contextual Factors: The other causes of delay discounting can be external, such as the past experiences of human beings and their social influences. 

Researchers and economists can follow these fundamental steps to perform the delay discounting task:

1. Task Setup: The first step is to select multiple exponentially progressive delay times, which can last from 1 week to 25 years. Next, the maximum reward amount, which can ideally be $100 or $1,000, is determined. Then comes deciding the trial numbers while balancing between the subject’s fatigue and data quality, usually between 6 to 8 trials.
2. Obtain Consent and Prepare Subjects: Participants are settled in an isolated room with their mobile devices switched off. Next, they sign the consent form and begin the task by clicking on the task icon and logging in with their IDs.
3. Instructions and Practice Trials: Explain the task thoroughly to the participants. Participants are allowed to take trials, favorably 10, to accommodate themselves with the task. These trials are not considered for the actual experiment.
4. Measuring a Single Indifference Point: Here, the analysts should display a certain maximum amount for the delayed reward and half of that for the immediate reward. Further, make adjustments to the immediate amount. If the participant selects the immediate amount, decrease it; if not, increase it. Continue adjusting the immediate reward for each consecutive choice until all choices are made. The final immediate reward selected by the subject is the indifference point, which is recorded for analysis.
5. Determine Indifference Points for Every Delay: Repeat the adjustments process for each delay, resetting initial rewards every time.
6. Assess Discounting for Different Outcomes: This step is entirely optional. The analyst interrogates the participants for their preferred outcome and then accordingly adjusts the values and performs the delay discounting task again with these new values.
7. Data Analysis: The analyst can use any software of their choice to analyze the data collected. They first need to ascertain each participant’s indifference point for each delay. Then, they need to find the median of these indifference points if the subject was a group of participants. Finally, the analyst can employ the curvilinear regression model to analyze the data and extract relevant parameters for conclusion. 

Human beings face a trade-off between small short-term benefits and large long-term rewards, as significant from the following examples: 

Example #1

Suppose John has $1000 to spend. He can either choose to spend that amount on a vacation that will provide him immediate happiness and pleasure. Alternatively, he can invest this amount into mutual funds with a 20-year lock-in period to maximize his wealth. An impulsive person will select the first option above the second one, but a wise individual would prefer the second choice. 

Example #2

Let us take a practical example. In an experiment, a group of people was given $100. They were asked to either spend that amount immediately and get a 10% discount on their purchase or wait for an upcoming mega sale in 2 months where they will get a 25% discount. 85% of the individuals selected option A. This means buying the products now with a 10% discount. These individuals demonstrated the example of delay discounting psychology by behaving impulsively. 

Example #3

Let us consider research that emphasizes the conflicting evidence on the relationship between high delay discounting rates and obesity. This is explored by focusing on methodological differences through systematic review and meta-analysis. In this analysis, seven databases were systematically searched, yielding 59 relevant studies. Among these, 29 found a significant positive association between delay discounting and obesity, while another 29 found no relationship. 

The studies employing best-practice methods for measuring monetary delay discounting and those using incentive-compatible experiments more often reported positive associations. However, it is notable that all the studies using both best-practice methods and incentive-compatible experiments reported significant positive relationships. 

Moreover, the logistic meta-regression revealed that incentive-compatible experiments, best-practice methods, parametric methods, studies on children/adolescents, and larger sample sizes were all more likely to indicate a significant positive association between delay discounting and obesity. 

Human beings can undertake various self-control practices to enhance their control over delay discounting:

• Acceptance and Commitment Therapy: Cognitive thinking and mindfulness strategies help individuals make informed choices based on their spending constraints and needs.
• Decision Automation: Individuals can set up automatic plans to streamline their present decisions. This includes buying recurring stock, making long-term investments in products with lock-in periods, contributing towards retirement plans, etc.
• Goal Visualization: Targeting the long-term objectives and deciding all the current actions towards their achievement can bring discipline in overlooking the immediate rewards.
• Changing Temporal Attention: The explicit-zero method can help individuals achieve contentment while understanding that leaving the current reward can result in acquiring a more significant future reward.
• Delayed Gratification Training: Another way is to push oneself to defer the immediate benefits for increasing patience and tolerance levels.
• Money Management Training: Money management is a disciplinary action that controls the immediate reward temptation and subsequent spending.