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The Retrospective Evaluation of Payment Sequences: Duration Neglect and Peak-and-End-Effects

Author

Listed:
  • Langer, Thomas

    (Westfälischen Wilhelms-Universität Münster Lehrstuhl für BWL, insbesondere Finanzierung)

  • Sarin, Rakesh

    (UCLA, Anderson School of Management)

  • Weber, Martin

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

In this paper we present experimental research examining the ability of individuals to make good retrospective evaluations of payment sequences. Inspired by the evidence on systematic biases in the retrospective evaluation of affective episodes involving pain and pleasure we designed choice scenarios for payment sequences in which the existence of peak and end effects as well as duration neglect could be examined. There are two main results: We do not observe a systematic impact of payment sequence features (other than its sum) on the choices if subjects merely get delivered the payments without any affection or effort. Subjects, by and large, choose the sequence with the highest total payment. In a second scenario, in which payments were linked to the subjects? effort and performance in strenuous tasks, we observe a strong effect of duration neglect and a weaker, but still significant end effect. We further find that the mere number of peak losses in a sequence strongly influences its attractiveness. In this scenario subjects do not often choose the sequence with the highest total payment.

Suggested Citation

  • Langer, Thomas & Sarin, Rakesh & Weber, Martin, 2000. "The Retrospective Evaluation of Payment Sequences: Duration Neglect and Peak-and-End-Effects," Sonderforschungsbereich 504 Publications 00-45, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:00-45
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp00-45.pdf
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    Cited by:

    1. Sing, Tien Foo & Zou, Yiheng, 2022. "Mortgage payments and equity premium puzzle," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 376-388.

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