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Bounded awareness and anomalies in intertemporal choice: Zooming in Google Earth as both metaphor and model

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  • Stein T. Holden

    (Norwegian University of Life Sciences)

  • John Quiggin

    (University of Queensland)

Abstract

This paper draws on recent developments in the theory of choice under uncertainty to model anomalies in intertemporal choice. Cognitive limitations leading to hyperbolic discounting and magnitude effects in intertemporal choice may be described in terms of bounded awareness, and represented by phenomena familiar from visualization software such as Google Earth. Cognitive limits on visualization impose constraints on both the area being viewed and the level of detail of the view, with a trade-off between the two. Increasing detail at the expense of limiting the area viewed may be described as zooming. Data from a field experiment were used to assess the theory with an incentive-compatible multiple price list approach involving magnitude levels of 5x, 10x and 20x the basic magnitude level with time horizons of one, three, six and 12 months. Without zooming adjustments in base consumption, very strong hyperbolic and magnitude effects were found, and present bias could not explain the hyperbolic effects. The zooming model provides an explanation of what appear to be significant intertemporal anomalies in the data.

Suggested Citation

  • Stein T. Holden & John Quiggin, 2017. "Bounded awareness and anomalies in intertemporal choice: Zooming in Google Earth as both metaphor and model," Journal of Risk and Uncertainty, Springer, vol. 54(1), pages 15-35, February.
    • Handle: RePEc:kap:jrisku:v:54:y:2017:i:1:d:10.1007_s11166-017-9254-2
    DOI: 10.1007/s11166-017-9254-2
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    Cited by:

    1. Holden, Stein T. & Tilahun, Mesfin, 2021. "Shocks and Stability of Risk Preferences," CLTS Working Papers 5/21, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    2. Chen Sun, 2023. "Measuring Preferences Over Intertemporal Profiles," Rationality and Competition Discussion Paper Series 386, CRC TRR 190 Rationality and Competition.
    3. Stein T. Holden & Dag Einar Sommervoll & Mesfin Tilahun, 2022. "Mental Zooming as Variable Asset Integration in Inter-Temporal Choice," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 11(1), pages 1-21, January.
    4. Holden, Stein T. & Tilahun, Mesfin & Sommervoll, Dag Einar, 2022. "Is diminishing impatience in time-dated risky prospects explained by probability weighting?," CLTS Working Papers 3/22, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    5. W. David Bradford & Paul Dolan & Matteo M. Galizzi, 2019. "Looking ahead: Subjective time perception and individual discounting," Journal of Risk and Uncertainty, Springer, vol. 58(1), pages 43-69, February.
    6. Chen Sun & Jan Potters, 2022. "Magnitude effect in intertemporal allocation tasks," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 593-623, April.
    7. Cruz Rambaud, Salvador & Ortiz Fernández, Piedad & Parra Oller, Isabel María, 2023. "A systematic review of the main anomalies in intertemporal choice," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 104(C).
    8. Stein T. Holden & Mesfin Tilahun, 2024. "Can Climate Shocks Make Vulnerable Subjects More Willing to Take Risks?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(4), pages 967-1007, April.
    9. Holden, Stein T. & Tilahun, Mesfin, 2023. "Numeracy Skills, Decision Errors, and Risk Preference Estimation," CLTS Working Papers 5/23, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    10. Holden, Stein T., 2018. "The Economics of Fertilizer Subsidies," CLTS Working Papers 9/18, Norwegian University of Life Sciences, Centre for Land Tenure Studies, revised 16 Oct 2019.
    11. Holden, Stein T. & Tilahun, Mesfin & Sommervoll, Dag Einar, 2020. "Magnitude Effects and Utility Curvature in Inter-temporal Choice," CLTS Working Papers 8/20, Norwegian University of Life Sciences, Centre for Land Tenure Studies.

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