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Temporal distance reduces the attractiveness of p-bets compared to $-bets

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  • Savadori, Lucia
  • Mittone, Luigi

Abstract

Although people normally prefer a more certain option over a riskier option of equal expected value, sometimes they are tempted to choose the riskier, but more rewarding one. Such temptation is even stronger when people decide for the distant future as compared with the near future. In Experiments 1 and 2 we showed that increasing temporal distance makes people more likely to choose a high risk $-bet (€400, 0.02;0) over a low risk p-bet (€14, 0.60;0). Furthermore, the risk aversion shift increased proportionally to the time delay and persisted even for long delays (6months). In Experiment 3, we showed that this temporal effect is associated with a decrease in positive feelings towards the p-bet, and with a decrease in the positive evaluation of the high-probability (60%) of the p-bet, but not with an increase of the positive evaluation of the high-payoff (400 euro) of the p-bet. In Experiment 4, we showed that increasing the salience of the probability feature tended to decrease the temporal effect, while increasing the salience of the prize did not vary the strength of the effect. Results are in line with an affect-based explanation of the temporal effect.

Suggested Citation

  • Savadori, Lucia & Mittone, Luigi, 2015. "Temporal distance reduces the attractiveness of p-bets compared to $-bets," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 26-38.
  • Handle: RePEc:eee:joepsy:v:46:y:2015:i:c:p:26-38
    DOI: 10.1016/j.joep.2014.11.004
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    Cited by:

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    2. Charles-Cadogan, G., 2021. "Market Instability, Investor Sentiment, And Probability Judgment Error in Index Option Prices," CRETA Online Discussion Paper Series 71, Centre for Research in Economic Theory and its Applications CRETA.

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    More about this item

    Keywords

    Psychological distance; Risk taking; Probability;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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