People are bad at delayed gratification. Who knew?
“Given the choice between a smaller immediate payout or a larger future payout, people generally prefer rewards sooner rather than later, a tendency called temporal discounting,” researchers from the University of Pennsylvania’s Wharton School and the TIAA Institute wrote in research presented on Wednesday.
While most people discount future rewards and consequences to at least some extent, the degree of temporal discounting varies widely from person to person, they added.
“These individual differences, in turn, are associated with a host of risky behaviors, such as smoking, overeating, gambling, borrowing excessively on credit cards and texting while driving.”
The study looked at the cognitive and neural mechanisms underlying temporal discounting, so more “targeted interventions” can be developed to minimize its harmful effects, especially in the areas of saving and investing.
It found that memory ability in older adults is associated with temporal discounting, even when controlling for age, gender and years of education.
Also, people with mild cognitive impairment discount future outcomes to a greater degree than cognitively normal individuals.
Lastly, executive function (or the ability to keep rules in mind during a task) is not associated with temporal discounting, but is associated with the ability to maximize expected value in risky choices.
What it means
“Understanding individual differences in temporal discounting as people age is especially important,” the authors noted. “The global population is aging rapidly, increasing the relative number of older decision makers. Middle-aged and older adults make many important economic decisions, including choices about savings and investments. They also make many health decisions, which often involve tradeoffs between smaller/sooner and larger/later rewards.”
The researchers studied 100 older adults, both cognitively normal and with mild cognitive impairment, to investigate the association between temporal discounting and both executive function and declarative memory.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
