Reverse Preference Reversals for Short Front-End Delays
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Transcript of Reverse Preference Reversals for Short Front-End Delays
Reverse Preference Reversals for Short Front-End Delays
Ayşe ÖncülerINSEAD, France
(joint work with Serdar Sayman, Koc U., Turkey)
Time Inconsistency• Discounted Utility Model (Koopmans, 1960)
Stationarity in Discounting:
If (x, t)~(y, t*), then (x, t+j)~(y, t*+j)
• A set of experimental evidence on (regular) time inconsistency, starting with Thaler (1981), Benzion et al (1989): Individuals prefer the later-larger reward (LL) at the beginning but closer to the date, switch to the sooner-smaller one (SS).
Time Inconsistency(Regular) Time Inconsistency
time
pres
ent v
alue
SS LL
Prefer LL
Prefer SS
Time Inconsistency• Discounted Utility Model (Koopmans, 1960)
Stationarity in Discounting:
If (x, t)~(y, t*), then (x, t+j)~(y, t*+j)
• A set of experimental evidence on (regular) time inconsistency, starting with Thaler (1981), Benzion et al (1989): Individuals prefer the later-larger reward (LL) at the beginning but closer to the date, switch to the sooner-smaller one (SS).
• Current study provides evidence on reverse time inconsistency: Individuals aim for the sooner-smaller reward and over time, they switch to the later-larger one
Experimental evidence and a possible explanation
Time Inconsistency(Regular) Time Inconsistency
time
pres
ent v
alue
SS LL time
pres
ent v
alue
SS LL
SSLL
LLSS
Example: Dieting, Christmas clubs Example: Vacation plans of workaholics
(Reverse) Time Inconsistency
Experimental Design
Hypothetical Real Payoffs
LoyaltyPrograms
MonetaryPayoffs
Study 1 Study 3
Study 2 Study 4
Study 1: Hypothetical Loyalty Program
• Aim: To check for regular/reverse time inconsistency
• INSEAD, Singapore (n=97) and Koc U., Turkey (n=100)
• Hypothetical scenarios on retailer loyalty programs(i) Local supermarket offers a $10 check if the buyer makes $100 purchases.
Reward is $25 when the cumulative purchase is $200
(ii) Subjects’ favorite movie theater offers a free ticket after 3 movie attendances or 2 free tickets after 5 attendances
• 2 conditions: beginning of program, midway through
% Subjects Willing to Wait
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Male Female Total
Beginning Midway
% Subjects Willing to Wait
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Male Female Total
Beginning Midway
RTI
TIRTI
TI
BeginningA: $10 after $100 B: $25 after $200
MidwayA: $10 today ($100 completed)B: $25 after $100 more ($200 total)
Supermarket Movie
BeginningA: 1 ticket after 3B: 2 tickets after 5
MidwayA: 1 ticket now (3 completed)B: 2 tickets after 2 more (5 total)
Study 1 Results - INSEAD
% Subjects Willing to Wait
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Male Female Total
Beginning Midway
% Subjects Willing to Wait
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Male Female Total
Beginning Midway
RTI ~TI RTI
BeginningA: $10 after $100 B: $25 after $200
MidwayA: $10 today ($100 completed)B: $25 after $100 more ($200 total)
Supermarket Movie
BeginningA: 1 ticket after 3B: 2 tickets after 5
MidwayA: 1 ticket now (3 completed)B: 2 tickets after 2 more (5 total)
Study 1 Results – Koc Uni.
Study 1- Conclusion
Overall, no significant time inconsistency in either direction
Some women exhibited regular TI- becoming more impatient for imminent reward
Men exhibited reverse TI- deferring an imminent reward
Possible pitfall: Effort required for payoff
Next: Choice task between two monetary payoffs
• Aim: to check time inconsistency for choice task between two
monetary outcomes to be received at different time periods
2 pairs of outcomes ($7-$10 and $20-$25)
4 pairs of time periods
Study 2: Hypothetical Monetary Outcomes
Future Condition Imminent Condition
$7 versus $10 1 day vs 3 days Now vs 2 days
3 days vs 1 week Now vs 4 days
1 week vs 2 weeks Now vs 1 week
2 weeks vs 4 weeks Now vs 2 weeks
$20 versus $25 1 day vs 3 days Now vs 2 days
… …
Study 2 - Results
$7 - $10 Female Male Total
1 day - 3 days
Today - 2 days
38%
72%
32%
81%
34%
77%
3 days - 1 week
Today - 4 days
19%
45%
18%
42%
19%
43%
1 week - 2 weeks
Today - 1 week
3%
28%
11%
26%
7%
27%
2 weeks-4 weeks
Today - 2 weeks
6%
14%
11%
10%
9%
12%
% preferring to wait
(Koc U., n1 = 70, n2 = 60, btw ss)
RTI
RTI
RTI
RTI
Study 2 - Results cont.
$20 - $25 Female Male Total
1 day - 3 days
Today - 2 days
44%
72%
26%
84%
34%
78%
3 days - 1 week
Today - 4 days
19%
52%
16%
71%
17%
62%
1 week - 2 weeks
Today - 1 week
6%
38%
8%
29%
7%
33%
2 weeks-4 weeks
Today - 2 weeks
3%
14%
5%
13%
4%
13%
% preferring to wait
(Koc U., n1 = 70, n2 = 60, btw ss)
RTI
RTI
RTI
RTI
Study 2- Conclusion
No gender difference
We observe RTI in almost all cases
% subjects preferring to wait decreases with delay
Replicated at INSEAD (n=67)
Possible pitfall: Not longitudinal
Next: Real payoffs
Study 3: Real Payoffs, Loyalty Program
• Aim: To check for regular/reverse time inconsistency in an incentive-compatible design
• INSEAD, Fontainebleau (n=47)– During the experiment, the campus café offered a two-level
reward program: students and staff could receive 1 croissant after buying 10 croissants, or could receive 2 croissants after 15 croissants. Customers are given a patronage card which bears an ID number. This card is shown when they make purchases, and the purchases are recorded on the card by means of a stamp.
• Intended choices are elicited at the beginning
• Purchase and promotion redemption is recorded for 6 weeks
Study 3 – Results(n=47, within-ss)
% preferring to wait (B)
Male Female
TOTAL
A: 1 free crois. after 10
B: 2 free crois. after 15 70% 25% 51%
A: 1 free crois after 10 purchased
B: 2 free crois. after 5 more 56% 95% 72%
TI RTI RTI
Study 3- Conclusion At the beginning, most men reported preferring later/larger
reward but some switched to sooner/smaller reward during the experiment (Regular Time Inconsistency)
At the beginning, most women reported preferring sooner/smaller reward but they switched to later/larger reward during the experiment (Reverse Time Inconsistency)
Overall, there seems to be some evidence on RTI and TI40% RTI19% TI41% consistent with earlier preference
• Replication of Study 2 with real payoffs, n=38, France
• 2 pairs of outcomes, 3 pairs of time periods
Study 4: Real Payoffs, Monetary Outcomes
Future Condition Imminent Condition
$7 versus $10 1 day vs 3 days Now vs 2 days
3 days vs 1 week Now vs 4 days
1 week vs 2 weeks Now vs 1 week
$20 versus $25 1 day vs 3 days Now vs 2 days
… …
Study 4 - Results
$7 - $10 Female Male Total
1 day - 3 days
Today - 2 days24%
76%
33%
67%
29%
71%
3 days - 1 week
Today - 4 days
18%
59%
38%
57%
29%
58%
1 week - 2 weeks
Today - 1 week
18%
29%
38%
43%
29%
37%
% preferring to wait
(INSEAD, n=38, within ss)
RTI
RTI
RTI
Study 4 – Results cont.
$20 - $25 Female Male Total
1 day - 3 days
Today - 2 days41%
59%
29%
57%
34%
58%
3 days - 1 week
Today - 4 days
35%
29%
29%
33%
32%
32%
1 week - 2 weeks
Today - 1 week
29%
18%
29%
29%
29%
24%
% preferring to wait
(INSEAD, n=38, within ss)
RTI
TI
Study 4 - Results
for €7 vs. €10: both females and males exhibit RTI
for €20 vs. €25: for small time periods RTI,
for larger periods females exhibit TI
Main Result
Evidence for “reverse” time inconsistency…
For loyalty programs: Men exhibit RTI for hypothetical
rewards; women exhibit RTI for real rewards
For neutral payoffs: It depends on the relative size of SS and
LL and the time interval between them
Main conclusion: Intertemporal preferences are richer
than previously recognized
Discussion
What can explain reverse time-inconsistency?
1. Utility from delayed consumption (savoring, Loewenstein 1987)
2. Effort Uncertainty (sunk cost of time, Soman 2003)
3. Affect
4. Form of discounting (elicitation study shows some subjects exhibit a modified discounting behaviour)
0.0
0.2
0.4
0.6
0.8
1.0
0 2 4 6 8 10 12
Exponential
Hyperbolic
Modified
,
Conclusion
An explicit identification of reverse time-inconsistency
Also observed in some recent experimentsSholten and Read (2005), Airoldi et al (2005), Attema et al (2006)
Implications in many domains: Loyalty programs, bank
loan schedules, etc