The "mere token" effect

[ciphergoth]

Happened across a fascinating new cognitive bias today: the "mere token" effect. In summary:

• If you offer people a choice between $300 in a week or $900 in a year, 62% of respondents choose the $300 in a week.
• If you tell them that, immediately after they choose, you're going to give them $50, and then present them with the same choice, they make roughly the same decision.
• If you offer them a choice between $50 now and $300 in a week, or $50 now and $900 in a year, suddenly 52% of respondents choose the $900 in a year option.

Obviously there's no rational reason to make a different choice in the second and third scenarios, the options in both scenarios are really the same, but the difference in the way they are presented makes a huge difference to people's responses.

It's worth noting that hyperbolic discounting with intertemporal bargaining, the model presented in "Breakdown of Will" that I've enthused about before, completely fails to predict this phenomenon.

Scope Insensitivity and the "Mere Token" Effect, Oleg Urminsky, 2006.

Update: I've edited the second point above: it used to read "If you give them $50, and then present them with the same choice, they make roughly the same decision". This gives the misleading impression that there's some difference in substance between the second and third points, which resulted in some discussions below. I hope that with the new phrasing, it's clear that there is no real difference at all between the second and third scenario; it is exactly the same choice phrased in two different ways. Updated: trying yet again with phrasing of the second choice.

Comments

[deliberateblank.livejournal.com]

Could be rational. If you have no money, getting any money quick may be more important. Have just acquired money, one can then take a longer term view.

Probably a different effect: I remember reading a web article years ago that explained why some watch manufacturer made three models of a particular watch. I can't find the article or remember the details but it went along the lines of: if they made two versions, the cheap $10 watch and the expensive $30 watch, most people buy the cheap one. If they introduce a $100 watch and change nothing else, the exact same group of people will now choose the $30 watch.

[deliberateblank.livejournal.com]

Also there's the element of trust: anyone can *claim* to offer $900 in a year but will they pay up? Best call their bluff quickly.

However the $50 up front "proves" their intention to give you money so you will be more prepared to wait for them.

[hughe.livejournal.com]

This is what i was going to say.

And in addition they are not so likely to change their already-made-up-mind from test1 to test2 when they are given the £50 as it would get them to question the intention of the £50 up-front (unless i misunderstood that and it is a different sample of people)

[ciphergoth.livejournal.com]

It is a different sample of people.

In all cases, the test is added to a customer satisfaction survey on a website. In all cases, you don't actually get any money until you've filled out all the options. In the second case, you get told you're going to get $50, you confirm that's what you're getting, and then you're presented with the choice; in the third you're presented with the choice with the $50 rolled in. So there is absolutely zero real difference between the two cases on which to hang a rational difference of decision.

[ciphergoth.livejournal.com]

Noodling more generally, it's funny how people say things like this in response to findings of cognitive bias. Usually, when people come up with what might be rational explanations for what appears to be irrational behaviour, new experiments test and falsify these rational explanations. This has happened a lot since Judgement Under Uncertainty was first published; the core findings are remarkably robust.

[ciphergoth.livejournal.com]

No, it can't be rational, because the second and third options are in practice exactly the same.

[palmer1984.livejournal.com]

I sort of missed the second option and was going to say something like the above!

[deliberateblank.livejournal.com]

Ah, yes, I slipped on that distinction. (Though I dispute that in practice they are the same, because clearly there is a difference in outcome! In general there's a danger of ignoring the side-channel, which makes many more behaviours look irrational than is actually the case.)

So, alternative popsci explanation: Economics has the concept of a "sunk cost" - money you've already lost which should not affect your choice of whether to spend more money towards a certain goal or not. People allegedly have difficulty reasoning about this but maybe this experiment shows that on some level people understand the principle. In case (2) the $50 is a sunk cost for the experimenter, or perhaps a "sunk gain" for the subject. It can't be used to reason about the future behaviour or motivations of the experimenter, so has no effect. The promise of a future $50 indicates something about the experimenter's future behaviour however, and if made good on promotes trust in the distant reward of $900.

[ciphergoth.livejournal.com]

There's no difference in outcome, only a difference in presentation. In one instance people are encouraged to take the $50 into account when making the choice, and in the other they are not.

Unless by difference in outcome you mean that people make different choices, but I can't see how we can justify that difference by reference to itself!