1 / 25

Reverse Preference Reversals for Short Front-End Delays

Reverse Preference Reversals for Short Front-End Delays. Ay ş e Öncüler INSEAD, 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)

abena
Download Presentation

Reverse Preference Reversals for Short Front-End Delays

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Reverse Preference Reversals for Short Front-End Delays Ayşe Öncüler INSEAD, France (joint work with Serdar Sayman, Koc U., Turkey)

  2. 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).

  3. present value SS LL time Time Inconsistency (Regular) Time Inconsistency Prefer LL Prefer SS

  4. 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

  5. Time Inconsistency (Regular) Time Inconsistency (Reverse) Time Inconsistency present value present value LL SS SS LL SS LL time SS LL time Example: Vacation plans of workaholics Example: Dieting, Christmas clubs

  6. Experimental Design Hypothetical Real Payoffs Loyalty Programs Study 1 Study 3 Monetary Payoffs Study 4 Study 2

  7. 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 • Local supermarket offers a $10 check if the buyer makes $100 purchases. Reward is $25 when the cumulative purchase is $200 • 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

  8. Study 1 Results - INSEAD Movie Supermarket RTI TI RTI TI Beginning A: $10 after $100 B: $25 after $200 Midway A: $10 today ($100 completed) B: $25 after $100 more ($200 total) Beginning A: 1 ticket after 3 B: 2 tickets after 5 Midway A: 1 ticket now (3 completed) B: 2 tickets after 2 more (5 total)

  9. Study 1 Results – Koc Uni. Movie Supermarket RTI ~TI RTI Beginning A: $10 after $100 B: $25 after $200 Midway A: $10 today ($100 completed) B: $25 after $100 more ($200 total) Beginning A: 1 ticket after 3 B: 2 tickets after 5 Midway A: 1 ticket now (3 completed) B: 2 tickets after 2 more (5 total)

  10. 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

  11. Study 2: Hypothetical Monetary Outcomes • 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

  12. Study 2 - Results (Koc U., n1 = 70, n2 = 60, btw ss) % preferring to wait RTI RTI RTI RTI

  13. Study 2 - Results cont. (Koc U., n1 = 70, n2 = 60, btw ss) % preferring to wait RTI RTI RTI RTI

  14. 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

  15. 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

  16. 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% RTI RTI TI

  17. 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 TI 40% RTI 19% TI 41% consistent with earlier preference

  18. Study 4: Real Payoffs, Monetary Outcomes • Replication of Study 2 with real payoffs, n=38, France • 2 pairs of outcomes, 3 pairs of time periods

  19. Study 4 - Results (INSEAD, n=38, within ss) % preferring to wait RTI RTI RTI

  20. Study 4 – Results cont. (INSEAD, n=38, within ss) % preferring to wait RTI TI

  21. 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

  22. 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

  23. Discussion What can explain reverse time-inconsistency? • Utility from delayed consumption (savoring, Loewenstein 1987) • Effort Uncertainty (sunk cost of time, Soman 2003) • Affect • Form of discounting (elicitation study shows some subjects exhibit a modified discounting behaviour)

  24. , bd

  25. Conclusion • An explicit identification of reverse time-inconsistency • Also observed in some recent experiments • Sholten and Read (2005), Airoldi et al (2005), Attema et al (2006) • Implications in many domains: Loyalty programs, bank loan schedules, etc

More Related