Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Psychologists show that 'money changes everything'

12.02.2007
It's been said by everyone from Cyndi Lauper to Alex Rodriguez that "money changes everything."

Now psychologists at Washington University in St. Louis have published a paper to support that claim. Studying delayed gratification and risk, the psychologists found that people are more likely to wait on collecting full payment for a non-consumable monetary reward than they are for any of three consumable rewards — beer, candy and soda.

Leonard Green, Ph.D., professor of psychology, and Joel Myerson, Ph.D., research professor of psychology, in Arts & Sciences at Washington University, along with their graduate students, Daniel D. Holt and Sara J. Estle, study the effect that delay to receipt of a reward has on the subjective value of that reward.

Their research looks at factors that affect the degree of self-control that people exercise, both the factors that increase the degree of self-control and those that increase impulsive decision-making.

More specifically, the researchers recently found that delayed monetary rewards are discounted less steeply than rewards that are directly consumable, such as soda.

For instance, if the average person were given the choice between an amount of soda right away and $50 worth of soda that they would have to wait six months to get, most people would take significantly less than $50 worth of soda now (discounting the value of the delayed soda considerably).

In contrast, the person given a choice between an amount of money right now and $50 in six months would not discount the delayed money nearly as much as the soda.

Their paper reporting this research was published in the January 2007 edition of Psychological Science. The work has far-reaching implications for many fields, including marketing, economics and the psychology of self-control.

Green and Myerson found that delayed money was discounted less steeply than beer, candy and soda, which were all discounted at approximately the same rate. Additionally, smaller delayed rewards of all types were discounted more steeply than corresponding larger amounts of rewards.

Interestingly, if the rewards are probabilistic, meaning that there is only a chance that one will get the reward (say, a 50 percent chance), then there is no difference in the rates at which money, candy, soda and beer are discounted.

'Money retains its utility'

Green and Myerson's results suggest that although previous researchers have claimed that abused substances, such as alcohol, have an inherent quality that makes them steeply discounted, abused substances may be discounted at the same rate as other directly consumables, such as candy and soda, at least by people without substance-abuse problems.

So what makes money different from directly consumable goods?

"Money retains its utility, despite the inconstancy of desire," says Green. "Money can be exchanged for almost any other reward that one might want, but the desire for beer, candy or soda is dependent upon a number of factors that vary over time — hunger, thirst, etc."

Thus, the average person exercises more self-control in waiting for a monetary reward because money is always useful, while we have "inconstant desire" for things like beer, candy and soda.

On the other hand, when the rewards are probabilistic, there is a chance that one might not get the money, beer, soda or candy. In this case, the average person discounts all the types of reward at the same rate.

So although probabilistic and delayed rewards may seem to be similar as far as "risk" — after all, you risk not getting the reward if there is a delay, and if there is some probability that you'll get it, then there also is some probability that you won't — the way people think about their choices is different, depending on whether the outcomes are monetary or directly consumable rewards, as well as whether the outcomes are delayed or probabilistic.

If left to our own devices ...

Myerson says that findings from their research on discounting and self-control can be readily applied to savings and investments.

Think of an employer-sponsored 401k retirement plan. Allowing automatic payroll deductions on a monthly basis would suggest that a participant "intuitively understands discounting," says Myerson.

If left to our own devices, he said, many of us would spend all of the money each month, and not exercise the self-control it takes to invest it ourselves.

Thus, we commit to a monthly payroll withdrawal because we intuitively understand our tendency to discount. We know that we are likely to take a smaller, immediate reward rather than wait for the larger, long-term reward that comes from saving for retirement.

The researchers' work helps in understanding the factors that influence choices involving certificates of deposit, retirement plans, health-club annual memberships, Social Security, automatic investments and so on, and also helps in the identification of weaknesses in people's decision-making processes.

The researchers suggest that such understanding may enable people to make better choices — those that lead to greater benefits in the long run.

Gerry Everding | EurekAlert!
Further information:
http://www.wustl.edu

More articles from Studies and Analyses:

nachricht The Great Unknown: Risk-Taking Behavior in Adolescents
19.01.2017 | Max-Planck-Institut für Bildungsforschung

nachricht A sudden drop in outdoor temperature increases the risk of respiratory infections
11.01.2017 | University of Gothenburg

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Traffic jam in empty space

New success for Konstanz physicists in studying the quantum vacuum

An important step towards a completely new experimental access to quantum physics has been made at University of Konstanz. The team of scientists headed by...

Im Focus: How gut bacteria can make us ill

HZI researchers decipher infection mechanisms of Yersinia and immune responses of the host

Yersiniae cause severe intestinal infections. Studies using Yersinia pseudotuberculosis as a model organism aim to elucidate the infection mechanisms of these...

Im Focus: Interfacial Superconductivity: Magnetic and superconducting order revealed simultaneously

Researchers from the University of Hamburg in Germany, in collaboration with colleagues from the University of Aarhus in Denmark, have synthesized a new superconducting material by growing a few layers of an antiferromagnetic transition-metal chalcogenide on a bismuth-based topological insulator, both being non-superconducting materials.

While superconductivity and magnetism are generally believed to be mutually exclusive, surprisingly, in this new material, superconducting correlations...

Im Focus: Studying fundamental particles in materials

Laser-driving of semimetals allows creating novel quasiparticle states within condensed matter systems and switching between different states on ultrafast time scales

Studying properties of fundamental particles in condensed matter systems is a promising approach to quantum field theory. Quasiparticles offer the opportunity...

Im Focus: Designing Architecture with Solar Building Envelopes

Among the general public, solar thermal energy is currently associated with dark blue, rectangular collectors on building roofs. Technologies are needed for aesthetically high quality architecture which offer the architect more room for manoeuvre when it comes to low- and plus-energy buildings. With the “ArKol” project, researchers at Fraunhofer ISE together with partners are currently developing two façade collectors for solar thermal energy generation, which permit a high degree of design flexibility: a strip collector for opaque façade sections and a solar thermal blind for transparent sections. The current state of the two developments will be presented at the BAU 2017 trade fair.

As part of the “ArKol – development of architecturally highly integrated façade collectors with heat pipes” project, Fraunhofer ISE together with its partners...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Sustainable Water use in Agriculture in Eastern Europe and Central Asia

19.01.2017 | Event News

12V, 48V, high-voltage – trends in E/E automotive architecture

10.01.2017 | Event News

2nd Conference on Non-Textual Information on 10 and 11 May 2017 in Hannover

09.01.2017 | Event News

 
Latest News

Helmholtz International Fellow Award for Sarah Amalia Teichmann

20.01.2017 | Awards Funding

An innovative high-performance material: biofibers made from green lacewing silk

20.01.2017 | Materials Sciences

Ion treatments for cardiac arrhythmia — Non-invasive alternative to catheter-based surgery

20.01.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>