IDEAS home Printed from https://ideas.repec.org/p/hhs/nlsseb/2015_013.html
   My bibliography  Save this paper

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

Author

Listed:
  • Holden, Stein

    (School of Economics and Business, Norwegian University of Life Sciences)

  • Quiggin, John

    (School of Economics, 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 incentivecompatible 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

  • Holden, Stein & Quiggin, John, 2015. "Bounded awareness and anomalies in intertemporal choice: Google Earth as metaphor and model," Working Paper Series 13-2015, Norwegian University of Life Sciences, School of Economics and Business.
    • Handle: RePEc:hhs:nlsseb:2015_013
    as

    Download full text from publisher

    File URL: https://www.nmbu.no/sites/default/files/pdfattachments/hh_wp_13_2015_2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten I. & Rutström, E. Elisabet, 2014. "Discounting behavior: A reconsideration," European Economic Review, Elsevier, vol. 71(C), pages 15-33.
    2. Drazen Prelec & George Loewenstein, 1991. "Decision Making Over Time and Under Uncertainty: A Common Approach," Management Science, INFORMS, vol. 37(7), pages 770-786, July.
    3. Hans P. Binswanger, 1980. "Attitudes Toward Risk: Experimental Measurement in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 395-407.
    4. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, May.
    5. Simon Grant & John Quiggin, 2013. "Inductive reasoning about unawareness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 717-755, November.
    6. Susan Laury & Melayne McInnes & J. Todd Swarthout, 2012. "Avoiding the curves: Direct elicitation of time preferences," Journal of Risk and Uncertainty, Springer, vol. 44(3), pages 181-217, June.
    7. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    8. Nicholas Barberis & Ming Huang & Richard H. Thaler, 2006. "Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing," American Economic Review, American Economic Association, vol. 96(4), pages 1069-1090, September.
    9. Ainslie, George, 1991. "Derivation of "Rational" Economic Behavior from Hyperbolic Discount Curves," American Economic Review, American Economic Association, vol. 81(2), pages 334-340, May.
    10. Azfar, Omar, 1999. "Rationalizing hyperbolic discounting," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 245-252, February.
    11. Mette Wik & Tewodros Aragie Kebede & Olvar Bergland & Stein Holden, 2004. "On the measurement of risk aversion from experimental data," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2443-2451.
    12. Mahmud Yesuf & Randall A. Bluffstone, 2009. "Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1022-1037.
    13. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    14. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2006. "Interactive unawareness," Journal of Economic Theory, Elsevier, vol. 130(1), pages 78-94, September.
    15. Pender, John L., 1996. "Discount rates and credit markets: Theory and evidence from rural india," Journal of Development Economics, Elsevier, vol. 50(2), pages 257-296, August.
    16. Botond Koszegi & Matthew Rabin, 2007. "Reference-Dependent Risk Attitudes," American Economic Review, American Economic Association, vol. 97(4), pages 1047-1073, September.
    17. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    18. George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 573-597.
    19. Benhabib, Jess & Bisin, Alberto & Schotter, Andrew, 2010. "Present-bias, quasi-hyperbolic discounting, and fixed costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 205-223, July.
    20. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    21. Paul A. Samuelson, 1937. "A Note on Measurement of Utility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 4(2), pages 155-161.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Holden, Stein, 2014. "Explaining anomalies in intertemporal choice: A mental zooming theory," CLTS Working Papers 2/14, Norwegian University of Life Sciences, Centre for Land Tenure Studies, revised 10 Oct 2019.
    3. Dorian Jullien, 2018. "Under Risk, Over Time, Regarding Other People: Language and Rationality within Three Dimensions," Research in the History of Economic Thought and Methodology, in: Including a Symposium on Latin American Monetary Thought: Two Centuries in Search of Originality, volume 36, pages 119-155, Emerald Group Publishing Limited.
    4. Dorian Jullien, 2016. "Under Uncertainty, Over Time and Regarding Other People: Rationality in 3D," GREDEG Working Papers 2016-20, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    5. Ubfal, Diego, 2016. "How general are time preferences? Eliciting good-specific discount rates," Journal of Development Economics, Elsevier, vol. 118(C), pages 150-170.
    6. Stephen L. Cheung, 2020. "Eliciting utility curvature in time preference," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 493-525, June.
    7. Mohammed Abdellaoui & Han Bleichrodt & Olivier l’Haridon, 2013. "Sign-dependence in intertemporal choice," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 225-253, December.
    8. 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.
    9. Marieka M. Klawitter & C. Leigh Anderson & Mary Kay Gugerty, 2013. "Savings And Personal Discount Rates In A Matched Savings Program For Low-Income Families," Contemporary Economic Policy, Western Economic Association International, vol. 31(3), pages 468-485, July.
    10. W. David Bradford & Meriem Hodge Doucette, 2023. "Effect of a brief intervention on respondents’ subjective perception of time and discount rates," Journal of Risk and Uncertainty, Springer, vol. 66(1), pages 47-75, February.
    11. Galizzi, Matteo M. & Miraldo, Marisa & Stavropoulou, Charitini & van der Pol, Marjon, 2016. "Doctor–patient differences in risk and time preferences: A field experiment," Journal of Health Economics, Elsevier, vol. 50(C), pages 171-182.
    12. Paola Manzini & Marco Mariotti, 2007. "Choice over Time," Working Papers 605, Queen Mary University of London, School of Economics and Finance.
    13. Mohammed Abdellaoui & Han Bleichrodt & Olivier l'Haridon & Corina Paraschiv, 2013. "Is There One Unifying Concept of Utility?An Experimental Comparison of Utility Under Risk and Utility Over Time," Management Science, INFORMS, vol. 59(9), pages 2153-2169, September.
    14. Méder, Zsombor Z. & Flesch, János & Peeters, Ronald, 2017. "Naiveté and sophistication in dynamic inconsistency," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 40-54.
    15. Hermann, Daniel & Mußhoff, Oliver & Rüther, Dörte, 2015. "Measuring farmers’ time preference – A comparison of methods," Department of Agricultural and Rural Development (DARE) Discussion Papers 260784, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    16. OUATTARA, Aboudou & DE LA BRUSLERIE, Hubert, 2015. "The term structure of psychological discount rate: characteristics and functional forms," MPRA Paper 75111, University Library of Munich, Germany.
    17. Julia Ihli, Hanna & Chiputwa, Brian & Winter, Etti & Gassner, Anja, 2022. "Risk and time preferences for participating in forest landscape restoration: The case of coffee farmers in Uganda," World Development, Elsevier, vol. 150(C).
    18. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    19. Kumar, Pradeep & Kant, Shashi, 2019. "Endogenous time preferences of forest goods and community-based forest management," Ecological Economics, Elsevier, vol. 163(C), pages 205-214.
    20. C. Leigh ANDERSON & Mary Kay GUGERTY, 2009. "Intertemporal Choice And Development Policy: New Evidence On Time‐Varying Discount Rates From Vietnam And Russia," The Developing Economies, Institute of Developing Economies, vol. 47(2), pages 123-146, June.

    More about this item

    Keywords

    Intertemporal choice; hyperbolic discounting; magnitude effects; zooming; limited asset integration; field experiment; calibration test.;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:nlsseb:2015_013. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Frode Alfnes (email available below). General contact details of provider: https://edirc.repec.org/data/ioumbno.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.