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

[pavlos.livejournal.com]

I'm not surprised, and I'd even say I expected something like that to be uncovered after learning of the very common bias where people under-value the future, either compared to the present or incrementally for different intervals. One way to think about it is that in casual situations people seem to apply an excessively high depreciation, like *0.25 per year, when calculating the NPV of the offer.

My guess is that, in more serious and controlled situations the same people would apply a more reasonable depreciation, like *0.8 a year or better. It seems that the "small amount of money now" fixes this for the casual situation of the experiment. It's not clear to me if the monery really suppresses a bias (skewed valuation) or if it addresses a straightforward issue of trust that otherwise confounds the experiment. I would certainly doubt whether I'd see the 1-week or 1-year payments, and fifty-one weeks less of doubt is valuable.

Another possible confounding factor is the "closed world" formulation of the experiment. In a closed world, "broke now" is really bad but "money in my pocket" may be comfortable enough to allow me to wait for the better pay-off in a year. I might be broke again next week, but who cares.

[sgloomi.livejournal.com]

Oh, believe me, no matter what the circumstances, the default state of almost anyone is 'broke now'. Insert smiley.