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ProtoPaper for Picoeconomics Website

George Ainslie
Veterans Affairs Medical Center, Coatesville

Presented at What Is It All About Anyway?
The Final Conference on Absolute Absurdity
West Bicycle State University, Siwash, Kansas
April 1, 2037

 

Published in 1890 in
R. Frack, M. Gimlett, and P. Snoot, eds.,
Brilliant Answers to Stupid Questions, Loquacity Press, pp. 437-429.

 

The non-contents of this non-article are not subject to non-copyright

 

Abstract

This is not a real article, but an imaginary prototype to be used for development of the website www.picoeconomics.org.  It includes some of the text and figures from a genuine article (Hyperbolic Discounting Versus Conditioning and Framing), but much material is omitted and a few elements have been added so that issues of formatting, figure placement, font usage and the like can be tested in a relatively short piece.  The smashup of the original article into this meaningless mess was done by Blueline Studio, and the only reason for mentioning that fact is to demonstrate that links to unrelated sites work properly.  This sentence, on the other hand, is to illustrate cross-linking to specific topics within another article -- such as, for example, the question of whether classical conditioning influences motivation.

 

 

It has been clear since Plato¹ that we have a strong tendency to act against what we ourselves see as our rational interests. Rationality has been defined with increasing precision since economist Paul Samuelson’s “Note on the Measurement of Utility” (1937), in what has come to be called expected utility theory or, more broadly, rational choice theory (RCT; Boudon 1996). Antirational tendencies have been catalogued in departures from the norms of RCT, many of which have been identified both in the laboratory (Herrnstein 1990) and in real-life choices (Jolls, Sunstein, and Thaler 1998). Graphically, RCT predicts that a person’s valuation of a prospective event can be plotted over delay as an exponential curve, losing a constant proportion of its remaining height for every unit of delay (figure 1A):

where Value0 = value if immediate and δ = (1 – discount rate). Any other function, if it does not generate a straight line, will generate curves from a given amount that sometimes cross the curves from some other amounts at other moments, simply because of the passage of time; that is, it will describe inconsistent preference. Inconsistent preference leaves a person susceptible to being a money pump, that is, opens her to exploitation by a competitor who repeatedly buys from her when her valuations fall below their exponentially discounted value and sells back to her when they rise (Arrow 1959; Conlisk 1996). Inconsistent preference also implies that a person can expect to make future choices that she does not currently want. Competition for survival is usually thought to have selected for people who value future events consistently, in markets and, perhaps, in the evolution of species (but see Cubitt and Sugden 2001).
            This comprehensive model of choice leaves unanswered the question of why we often make choices that defeat our own plans—that is, why impulses or temporary preferences arise for alternatives that usually seem inferior. The diagnosis of impulse control disorder now covers a wide range of behaviors that lie at the extremes of ordinary bad habits, including pathological gambling, compulsive shopping, intermittent explosive disorder, binge eating, and “problematic Internet use” (Hollander and Stein 2006), which have joined the classical substance abuse disorders in the realm of addictions. Much can be ascribed to naivete; incipient addicts often fail to anticipate the problems that will ensue. It has also been proposed that addiction, conceived broadly, does not violate RCT, but is a rational choice by people with low valuations of the future (Becker and Murphy 1988). However, both the naivete theory and the steep but consistent devaluation theory fail to account for the frequent experience of addicts themselves, who report strenuous efforts at recovery that are undermined by temporary preferences to resume their habits, often with full knowledge of the consequences. The problem confronting RCT has a tougher core: Why do experienced addicts and even highly sophisticated nonaddicts keep making choices that they know they will regret? In other words, what causes the basic tendency to form temporary preferences, in the absence of new information, for alternatives that usually seem poorer?
            This question is usually answered by a resort to common experience: a temporary craving (but why temporary?), a passionate nature (but how does passion interact with other motives?), or a weak will (but why should will be required in the first place?). The commonsense approach is developed most fully in the works of Baumeister and his collaborators (1994): An impulse is defined only as “a specific motivation or desire to perform a particular action” (132) but implies a “lower process” overriding a “higher process” (8) and represents a failure of “strength” (17–20), which these authors equate with willpower. By analogy to a muscle, willpower is said to become exhausted with effort in the short run, but strengthened by repeated efforts. These are familiar experiences, but an appeal to them does not advance our understanding of impulsive choice. What directs the will, against what, and what factors make the will strong against one kind of impulse at the same time that it is weak against another? An explicit theory of impulsiveness—and control—must specify the properties of an evaluation process that enables or prevents temporary preferences in particular circumstances. To assure coherence, such a theory should make it possible to depict its predictions as a plot of the values of alternatives over time.

Hyperbolic Discounting

The discovery that spontaneous discount curves are hyperbolic has offered an alternative explanation for impulses, although it, too, is incomplete. Hyperbolic or other hyperconcave discounting has been proposed as the basis of a revision of RCT that might serve as the model of motivation in all the behavioral sciences (Gintis 2007). The hypothesis that humans and nonhumans alike have a basic tendency to discount delayed events in a hyperconcave curve has two roots. The economist Robert Strotz (1956) pointed out that people might recognize nonexponential discount curves in themselves and thus expect themselves to reverse their own current plans in predictable ways as time goes by; and behavioral psychologists Shin-Ho Chung and Richard Herrnstein (1967) reported that pigeons working for food on two nonexclusive, unpredictable (concurrent VI VI) schedules distributed their pecks in proportion to the inverses of the mean delays to food delivery, demonstrating that Herrnstein’s matching law applies to delay. Application of the matching law to predictable rewards at specific delays (discrete trials) yields a hyperbolic function of value as a function of delay (Ainslie 1975), which was given its most-cited form by Mazur (1987):

 

where Value0 = value if immediate and k is degree of impatience. This function predicts that for some cases where smaller rewards precede larger alternatives, individuals will prefer the larger reward when both are distant, but will change to preferring the smaller reward as time elapses, an example in very basic terms of the predictable preference reversal that Strotz discussed (figure 1B).

            The first discrete trial experiment to look for hyperbolic discounting did not test the exact shape of the curve, only its property of predicting motivation to forestall a future choice (Ainslie 1974). Preference reversal as a function of delay was observed directly soon afterward (Ainslie and Herrnstein 1981; Green et al. 1981).² In the same year economist Richard Thaler (1981) reported that discount rates inferred from human subjects’ self-reports declined as hypothetical delays became longer, implying hyperconcavity. The first preference-reversal experiment with human subjects offered college students temporary relief from irritating background noise (Solnick et al. 1980). The subjects preferred shorter, immediate respites to longer, delayed ones, but reversed their preference when the wait before each respite was lengthened by only 15 seconds. Soon preference reversal was found to occur even for cash prizes, both real and hypothetical (Ainslie and Haendel 1983). Precise curve-fitting came soon afterward (Mazur 1987; Rodriguez and Logue 1988) and has become increasingly fine-tuned (Grace 1996; Green, Fry, and Myerson 1994; Green and Myerson 2004; Kirby 1997; Mazur 2001).