This special issue showcases cutting-edge contributions to the ยฎeld of intertemporal choice, which refers to tradeos between costs and beneยฎts occurring at dierent points in time. Although intertemporal choice is a central aspect of decision theory and decision research ร it is dicult to think of any important decision that lacks an intertemporal component ร research on it emerged and ยฏowered only in the last two decades.
Until the 1980s, the discounted utility (DU) model, which was ยฎrst proposed by Samuelson in 1939 (see Loewenstein, 1992, for a historical discussion), was adopted uncritically by economists and decision theorists. Discounted Utility theory assumes that individuals discount future events at a constant rate, so that the value of an experience extended over time is given by:
where U 0 is the present value of the experience, u t is the utility to be obtained from the experience at time t, and d is a discount factor which is usually assumed to be less than 1 (corresponding to positive time preference).
Although even Samuelson himself acknowledged that DU wasn't a particularly realistic model of how people actually make intertemporal choices, the ยฎrst major empirically grounded critique of DU came only in 1981 with the publication by Richard Thaler of Some empirical evidence on dynamic inconsistency'. Thaler conducted a survey in which respondents were asked to make a series of hypothetical intertemporal choice questions. Their responses, he showed, violated a number of DU's basic assumptions and implications. Within the decade, a catalogue of anomalies in intertemporal choice' had been assembled (Loewenstein and Prelec, 1992). The anomalies included the magnitude eect (small amounts are discounted faster than large amounts), the sign eect (gains are discounted faster than losses), the delay-speedup asymmetry (inferred discount rates are greater when decision makers are confronted with decisions that involve delaying anticipated rewards than for decisions that involve expediting rewards), and hyperbolic time discounting (discounting is proportionately higher for short than for long delays). These anomalies appear when people are evaluating single delayed events, and even more appear when they are evaluating sequences. In particular, there are frequent cases of what appears to be negative time discounting (getting bad things out of the way and delaying good ones) especially when people choose between sequences of consumption.