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When I’m 64: Discounting, Time Preference, and Personal Identity

Shane Frederick: June 9, 2007; Running Time: 0:44:31

About the Lecture

About the Lecture

Neither philosophers nor economists can satisfactorily explain some quirky aspects of decision-making, such as why most people elect to receive a 30-minute massage in the next two weeks, as opposed to a 45-minute massage a few months down the road. Shane Frederick teases apart preferences like these, coming at them from different perspectives, and raises questions about the degree to which rational thinking drives human choices.

Frederick’s talk looks at how people weigh the future when making choices. Some studies have shown that “people give less weight to the future – they discount future utility the way bankers discount future streams of income,” says Frederick. But other research Frederick cites demonstrates that people like to save the best for last. In ordering a sequence, study participants chose to eat strawberries, then liquorice, and then jelly beans -- holding out for “the better thing later,” in this case, the sweetest treat. In another example of people preferring “improving sequences,” subjects chose to dine at a quotidian Greek grill first, followed by a fancy French restaurant. But in a “weird preference reversal,” people chose to pay more for a “declining sequence,” where they would eat first at the expensive French restaurant, and then at the Greek grill. There is incoherence in people’s preferences, which has long puzzled thinkers from different disciplines.

According to Frederick, economists say there’s no arguing with tastes, while philosophers prefer to think that rationality requires some concern for the future. We all have a stake in such debates, points out Frederick. In the real world, individuals make decisions about current behaviors that have future impacts, such as drinking, exercising, and tanning. Societies make decisions about vaccinations and tapping energy resources that impact the climate. Do humans value or discount future life? Frederick notes a study that asked people to choose between Program A, which saves 300 lives in your generation, but no lives in your children’s and grandchildren’s time; or Program B, which saves 100 lives in your generation, and in each of the succeeding generations. 80% of participants preferred Program B, because it seemed fairer. But Frederick cautioned that whether people clearly place a value on their future selves, or the future of others remains a continuing controversy, with much depending on how researchers frame their studies and questions.

Lecture Details

Location: E51-115

“Most studies imply the future is valued less....The assumption is people discount future utility the way bankers discount future streams of income. But sequence studies imply the opposite.... Good things move forward in time.”

Shane Frederick

About the Speaker

Shane Frederick

Sarofim Family Career Development Professor, and Associate Professor of Management Science, MIT Sloan School of Management

Shane Frederick's primary research interests are judgment and choice heuristics, intertemporal choice, preference elicitation procedures, the relation between IQ and decision making strategies, consumer regret, and biases in predicting the preferences of others. He has been at Sloan since 2001. Prior to that, he was a research associate and lecturer at the Woodrow Wilson School of Public & International Affairs at Princeton University. He received a Ph.D. in Decision Sciences from Carnegie Mellon University in 1999, an M.S. in Resource Management from Simon Fraser University in 1993 and a B.S. in Zoology from the University of Wisconsin in 1990.