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

[a-rob-z.livejournal.com]

Interesting. It puzzles me what kind of "explanation" for this phenomenon would be helpful. As I understand the assertion is that the representation of the offer in scenario 2 & 3 is different while the substance of the offer is identical. Therfore the argument is that the subjects are making an irrational choice (although it isn't clear in which case) as they are responding differently to offers which from the point of view of substance (i.e. cash in this case) are the same. The typical explanation for such phenomena is that the subjects have misinterpreted the offers, which are slightly odd, usually because they mistake them for types of offers that are more familar to them but which are actually substantively different (often having money involved skews the results, I haven't checked the study, but they often repeat the offer as a game with points instead of money and don't find the same effect - again I don't have a reference).
So to my question, what is a useful explanation of this phenomenon? There can be no explanation by logic as in order to apply logic you have to convert option 2 & 3 into identical propositions which leaves you dry. I have discussed above an explanation by analogy. My view is that usually human beings base decision making of this type on heuristics not logic - they try to think of outcomes of similar choices that have been offered to them in the past. You can play around with defining your offer in way that looks like one that was a good bet in the past versus one that has looked like a bad bet in the past. You can play around with the concreteness and the abstractness of the offer (money versus points). The common human strategy while definitely irrational seems to be a somewhat successful option evolutionarily so far which is probably the most you can say. I'd guess that the strictly logical approach to such questions might have flaws too. There'd probably be too many pieces of information to take into account to fully assess the value of $300 now versus $900 later and in order to avoid stasis you just have to break the loop - the precise phrasing of the offer leads to the average human breaking the loop one way or the other. I bet if it was £300 now versus £1m at the end of the year - logical behaviour would reassert. Anyway I've gone on way long - anyone else want a go?