reverse preference reversals for short front-end delays

Reverse Preference Reversals for Short Front-End Delays

Ayşe ÖncülerINSEAD, France

(joint work with Serdar Sayman, Koc U., Turkey)

Time Inconsistency• Discounted Utility Model (Koopmans, 1960)

Stationarity in Discounting:

If (x, t)~(y, t*), then (x, t+j)~(y, t*+j)

• A set of experimental evidence on (regular) time inconsistency, starting with Thaler (1981), Benzion et al (1989): Individuals prefer the later-larger reward (LL) at the beginning but closer to the date, switch to the sooner-smaller one (SS).

Time Inconsistency(Regular) Time Inconsistency

time

pres

ent v

alue

SS LL

Prefer LL

Prefer SS

Time Inconsistency• Discounted Utility Model (Koopmans, 1960)

Stationarity in Discounting:

If (x, t)~(y, t*), then (x, t+j)~(y, t*+j)

• A set of experimental evidence on (regular) time inconsistency, starting with Thaler (1981), Benzion et al (1989): Individuals prefer the later-larger reward (LL) at the beginning but closer to the date, switch to the sooner-smaller one (SS).

• Current study provides evidence on reverse time inconsistency: Individuals aim for the sooner-smaller reward and over time, they switch to the later-larger one

Experimental evidence and a possible explanation

Time Inconsistency(Regular) Time Inconsistency

time

pres

ent v

alue

SS LL time

pres

ent v

alue

SS LL

SSLL

LLSS

Example: Dieting, Christmas clubs Example: Vacation plans of workaholics

(Reverse) Time Inconsistency

Experimental Design

Hypothetical Real Payoffs

LoyaltyPrograms

MonetaryPayoffs

Study 1 Study 3

Study 2 Study 4

Study 1: Hypothetical Loyalty Program

• Aim: To check for regular/reverse time inconsistency

• INSEAD, Singapore (n=97) and Koc U., Turkey (n=100)

• Hypothetical scenarios on retailer loyalty programs(i) Local supermarket offers a $10 check if the buyer makes $100 purchases.

Reward is $25 when the cumulative purchase is $200

(ii) Subjects’ favorite movie theater offers a free ticket after 3 movie attendances or 2 free tickets after 5 attendances

• 2 conditions: beginning of program, midway through

% Subjects Willing to Wait

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Male Female Total

Beginning Midway


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Male Female Total

Beginning Midway

RTI

TIRTI

TI

BeginningA: $10 after $100 B: $25 after $200

MidwayA: $10 today ($100 completed)B: $25 after $100 more ($200 total)

Supermarket Movie

BeginningA: 1 ticket after 3B: 2 tickets after 5

MidwayA: 1 ticket now (3 completed)B: 2 tickets after 2 more (5 total)

Study 1 Results - INSEAD


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Male Female Total

Beginning Midway


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Male Female Total

Beginning Midway

RTI ~TI RTI

BeginningA: $10 after $100 B: $25 after $200

MidwayA: $10 today ($100 completed)B: $25 after $100 more ($200 total)

Supermarket Movie

BeginningA: 1 ticket after 3B: 2 tickets after 5

MidwayA: 1 ticket now (3 completed)B: 2 tickets after 2 more (5 total)

Study 1 Results – Koc Uni.

Study 1- Conclusion

Overall, no significant time inconsistency in either direction

Some women exhibited regular TI- becoming more impatient for imminent reward

Men exhibited reverse TI- deferring an imminent reward

Possible pitfall: Effort required for payoff

Next: Choice task between two monetary payoffs

• Aim: to check time inconsistency for choice task between two

monetary outcomes to be received at different time periods

2 pairs of outcomes ($7-$10 and $20-$25)

4 pairs of time periods

Study 2: Hypothetical Monetary Outcomes

Future Condition Imminent Condition

$7 versus $10 1 day vs 3 days Now vs 2 days

3 days vs 1 week Now vs 4 days

1 week vs 2 weeks Now vs 1 week

2 weeks vs 4 weeks Now vs 2 weeks


… …

Study 2 - Results

$7 - $10 Female Male Total

1 day - 3 days

Today - 2 days

38%

72%

32%

81%

34%

77%

3 days - 1 week

Today - 4 days

19%

45%

18%

42%

19%

43%

1 week - 2 weeks

Today - 1 week

3%

28%

11%

26%

7%

27%

2 weeks-4 weeks

Today - 2 weeks

6%

14%

11%

10%

9%

12%

% preferring to wait

(Koc U., n1 = 70, n2 = 60, btw ss)

RTI

RTI

RTI

RTI

Study 2 - Results cont.


1 day - 3 days

Today - 2 days

44%

72%

26%

84%

34%

78%

3 days - 1 week

Today - 4 days

19%

52%

16%

71%

17%

62%

1 week - 2 weeks

Today - 1 week

6%

38%

8%

29%

7%

33%

2 weeks-4 weeks

Today - 2 weeks

3%

14%

5%

13%

4%

13%


(Koc U., n1 = 70, n2 = 60, btw ss)

RTI

RTI

RTI

RTI

Study 2- Conclusion

No gender difference

We observe RTI in almost all cases

% subjects preferring to wait decreases with delay

Replicated at INSEAD (n=67)

Possible pitfall: Not longitudinal

Next: Real payoffs

Study 3: Real Payoffs, Loyalty Program

• Aim: To check for regular/reverse time inconsistency in an incentive-compatible design

• INSEAD, Fontainebleau (n=47)– During the experiment, the campus café offered a two-level

reward program: students and staff could receive 1 croissant after buying 10 croissants, or could receive 2 croissants after 15 croissants. Customers are given a patronage card which bears an ID number. This card is shown when they make purchases, and the purchases are recorded on the card by means of a stamp.

• Intended choices are elicited at the beginning

• Purchase and promotion redemption is recorded for 6 weeks

Study 3 – Results(n=47, within-ss)

% preferring to wait (B)

Male Female

TOTAL

A: 1 free crois. after 10

B: 2 free crois. after 15 70% 25% 51%

A: 1 free crois after 10 purchased

B: 2 free crois. after 5 more 56% 95% 72%

TI RTI RTI

Study 3- Conclusion At the beginning, most men reported preferring later/larger

reward but some switched to sooner/smaller reward during the experiment (Regular Time Inconsistency)

At the beginning, most women reported preferring sooner/smaller reward but they switched to later/larger reward during the experiment (Reverse Time Inconsistency)

Overall, there seems to be some evidence on RTI and TI40% RTI19% TI41% consistent with earlier preference

• Replication of Study 2 with real payoffs, n=38, France

• 2 pairs of outcomes, 3 pairs of time periods

Study 4: Real Payoffs, Monetary Outcomes

Future Condition Imminent Condition


3 days vs 1 week Now vs 4 days

1 week vs 2 weeks Now vs 1 week


… …

Study 4 - Results


1 day - 3 days

Today - 2 days24%

76%

33%

67%

29%

71%

3 days - 1 week

Today - 4 days

18%

59%

38%

57%

29%

58%

1 week - 2 weeks

Today - 1 week

18%

29%

38%

43%

29%

37%


(INSEAD, n=38, within ss)

RTI

RTI

RTI

Study 4 – Results cont.


1 day - 3 days

Today - 2 days41%

59%

29%

57%

34%

58%

3 days - 1 week

Today - 4 days

35%

29%

29%

33%

32%

32%

1 week - 2 weeks

Today - 1 week

29%

18%

29%

29%

29%

24%


(INSEAD, n=38, within ss)

RTI

TI

Study 4 - Results

for €7 vs. €10: both females and males exhibit RTI

for €20 vs. €25: for small time periods RTI,

for larger periods females exhibit TI

Main Result

Evidence for “reverse” time inconsistency…

For loyalty programs: Men exhibit RTI for hypothetical

rewards; women exhibit RTI for real rewards

For neutral payoffs: It depends on the relative size of SS and

LL and the time interval between them

Main conclusion: Intertemporal preferences are richer

than previously recognized

Discussion

What can explain reverse time-inconsistency?

1. Utility from delayed consumption (savoring, Loewenstein 1987)

2. Effort Uncertainty (sunk cost of time, Soman 2003)

3. Affect

4. Form of discounting (elicitation study shows some subjects exhibit a modified discounting behaviour)

0.0

0.2

0.4

0.6

0.8

1.0

0 2 4 6 8 10 12

Exponential

Hyperbolic

Modified

,

Conclusion

An explicit identification of reverse time-inconsistency

Also observed in some recent experimentsSholten and Read (2005), Airoldi et al (2005), Attema et al (2006)

Implications in many domains: Loyalty programs, bank

loan schedules, etc

reverse preference reversals for short front-end delays

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