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Factors Affecting Delay Discounting—The Real Option Approach

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  • Eric A. L. Li

Abstract

We study factors that can influence Delayed Reward Discounting (DRD) behavior from a novel approach based on economic theory. Real Option (RO) analysis shows that when a decision is irreversible, can be delayed and produces uncertain benefits, then future rewards will be discounted in a way that produces seemingly irrational behavior. In a factorial experimental survey, we asked college students how much they were willing to pay for a digital product when the above factors are involved. Results show that DRD behavior is significantly more manifest when the above factors are present than when absent. We proceeded to calculate the magnitude of this increased DRD behavior that is consistent with predictions from RO theory.

Suggested Citation

  • Eric A. L. Li, 2017. "Factors Affecting Delay Discounting—The Real Option Approach," International Journal of Psychological Studies, Canadian Center of Science and Education, vol. 9(2), pages 1-96, June.
    • Handle: RePEc:ibn:ijpsjl:v:9:y:2017:i:2:p:96
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    References listed on IDEAS

    as
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    3. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 164-187, February.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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