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

[djm4]

Wow. That's a new one on me, too.

[actionreplay.livejournal.com]

But if they work for a bank, they'll ask you the prevailing interest rate and take out a calculator first to discount the forward amount :).

And then charge you $800 for the service :).

[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.

[http://users.livejournal.com/_lj_sucks_/]

I'm not sure I understand the scenarios as described.

(1) You ask them to choose $300 in a week or $900 in a year.
(2) You give them $50, then ask them to choose $300 in a week or $900 in a year.
(3) You ask them to choose $50 now and $300 in a week, or $50 now and $900 in a year.

So basically, giving them something now has no effect, but offering them the choice of something now does?

[hairyears.livejournal.com]

It's perfectly rational if there's no trust - no expectation that the second or third payments in the future will materialise. By that logic, the experiment has established that $50 is a sum that people will 'punt' against the remote possibilty of a large sum in future; but if you offer them more money up-front, they'll take it far more seriously than an unlikely reward at some future date.

[simont]

This might depend on the precise wording used, but I wonder if it's a question of people not starting to listen properly until part way through the sentence?

Suppose option 2 says "You get $50 now, and also you can choose $300 in a week or $900 in a year", and option 3 says "You get $50 now and $300 in a week, or $50 now and $900 in a year". Someone who wasn't listening properly for the first four words of each would naturally treat option 2 exactly like option 1, but would treat option 3 very differently and might easily consider that money right now trumps money in a week in addition to the extra $600 a year later.

[barking-watcher.livejournal.com]

Very interesting and depending on my personal circumstances at the time of asking I suspect I would respond in the following fashion

Scenario One. Take the $300, I can't really explain but the idea of having to wait a year means I'm less likely to trust the other person to pay the $900

Scenario Two & Three. Slightly more inclined to go for the $900 but still worried about the year waiting for it, can't explain why though.

[henry_the_cow]

Fascinating!

[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?

[drdoug.livejournal.com]

Argh! No fair!

Yet another cognitive bias to watch out for. I like to think I'm relatively good at this sort of thing. My personal preference for deferred gratification options sometimes errs on the too-strong/time-discount-too-low side, which is unusual. (I've been known to save treats long past their edibility dates, and not particularly regretted it.) But nevertheless - I strongly suspect I'm somewhat prone to this when making snap judgements under pressure. And so I'll be trying to bear this one in mind, along with all the others I'm aware of ... adding to the risk of cognitive overload, making me more prone to errors of judgement. Whereas people seeking to exploit this in offers have the time to consider (and can pick just one).

Actually, though, those who do seek to exploit that sort of flaw (whether legit sales staff or scam artists) tend not to restrict themselves to a single strategy, and spotting any such tactics tends to be a red flag for me, and once I'm actively suspicious I'm very hard to convince.

'Frinstance, I can't see how I'm ever going to get my fogged double glazing panels replaced, since it requires interacting with double glazing sales people, and I've yet to meet ones who don't scream "Run away! Do not buy!" to me. It's life-limitingly foolish to invite known vampires in to your home ... but what if vampires are the only ones who can fix your windows?

[drdoug.livejournal.com]

Another hit-and-run-point: it'd make for a clearer comparison if you were consistent in the percentages reported - so the base is 62% of people choosing the $300 now option, and the changed 'mere token' scenario has 48% of people choosing the $300 now option.

That's only 14% of people changing their minds - it looks like it could well be significant, but it's clearly not as universal/strong a phenomenon as some others. Including the base effect of dramatic discount rates of which the 'mere token' effect is a modulation.

[sgloomi.livejournal.com]

Um. I'm probably being really stupid, but I read the 'revised' second and third options as ...

Second: I get $50 now, and then get to chose between $300 and $500.

Third: I get to chose between $50, $300 and $500.

... which seem completely different, and I can't seem to read em any other way. Like I said, probably me being a dumb.

[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.