Allure of rewards:
The influence of financial constraints on the
attractiveness of immediate and delayed rewards
Anja Tamm
Allure of rewards:
The influence of financial constraints on the attractiveness
of immediate and delayed rewards
University of Groningen
Faculty of Economics and Business
M.Sc. Marketing Management
Master Thesis
15
thof January 2018
Anja Tamm
Westerhavenstraat 4-1, 9718 AL Groningen
+49 151 14459339
a.tamm@student.rug.nl
S3300358
Abstract
Table of Content
1. Introduction ... 1
2. Theoretical Framework ... 2
2.1 Factors that influence the Financial Impatience of Constrained Consumers ... 3
2.1.1 Increased Attractiveness of Immediate Rewards... 4
2.1.2 Decreased Attractiveness of Delayed Rewards ... 6
3. Research Design ... 9
3.1 Participants ... 10
3.2 Measures and Procedure ... 10
3.2.1 Attractiveness of Immediate and Delayed Rewards ... 10
3.2.2 Financial Manipulation ... 11
3.2.3 Measuring Subjective Time Perception ... 12
4. Results ... 12
4.1 Analysis of Happiness Ratings ... 13
4.3 Analysis of Perceived Value Ratings ... 17
4.4 Analysis of Subjective Time Perception ... 19
4.5 Analysis of the Mediating Role of Subjective Time Perception ... 20
5. Discussion ... 22
5.1 Limitations... 24
5.2 Managerial Implications ... 24
References ... 26
1
1. Introduction
One person out of ten is estimated to live on less than 1.90$ per day and thus under the international poverty line (Purchasing Power Parity of 2011 in $) in 2013. In absolute numbers, this equals around 767 million people worldwide (World Bank Group, 2016). The consequences of being poor are extensive. The life expectancy of men and women in European countries, compared to African countries, a continent characterized by a high poverty rate, can vary more than 30 years (World Health Organization, 2015). Additionally, the healthy life expectancy of the African population is drastically lower than the number of years a newborn in Europe is expected to live in full health (World Health Organization, 2015). Health is however not the only factor influenced by poverty. According to the World Bank Group (2016), the wealthiest children in the world are four times more likely to have access to elementary education compared to the poorest ones.
2
the rewards change (2) before and after financial cues will be made salient to individuals. Further, the study will highlight the role that subjective time perception plays in the context of deferred rewards. As suggested by previous findings in literature, different factors can change perceptions regarding future durations and thus influence intertemporal choice (Kim & Zauberman, 2009; Wittmann, 2009; Zauberman, Kim, Malkoc & Bettman, 2009). In this study, it is examined if feeling financially deprived is one of these factors, making the future appear as more distant. If constrained consumers perceive the same future distance to be further away than not constrained consumers do, a potential explanation is provided to why they find future rewards less appealing than not constrained consumers.
By identifying, how the attractiveness of rewards change depending on how consumers perceive their financial situation, interventions can be established to support constrained consumers in overcoming this myopia, and ultimately support them in escaping the poverty trap.
2. Theoretical Framework
3
a relatively new perspective, examining the attractiveness of both immediate and delayed rewards, and the influence of financial constraints on the attractiveness of each reward.
2.1 Factors that influence the Financial Impatience of Constrained Consumers
Intertemporal choice involves individuals deciding for one reward at the expense of another, implying a relative trade-off one has to make between these two (Kim & Zauberman, 2013). Thus, patience is the product of weighing preference for immediate, and preference for delayed rewards against each other (Bechara, 2005). It is important to comprehend this connection, as it shows that a change in preference for one reward leads to a change of patience, since the latter depends on the former (Kim & Zauberman, 2013). The tendency of people who feel poor to be more financially impatient, in comparison to people who do not feel constrained, may thus be driven in three different ways: (1) Increased preference for immediate rewards, (2) decreased preference for delayed rewards, or (3) the occurrence of both mechanisms. Until now, literature has failed to determine if feeling poor makes immediate rewards more attractive, leading to the tendency to choose smaller sooner rewards over larger later ones, or if the decreased attractiveness of delayed rewards drives this decision. This question is essential, as the psychological processes behind these are presumably different. McClure, Laibson, Loewenstein and Cohen (2004) studied the neural mechanisms behind intertemporal choices and found that there are two separate systems activated when making decisions regarding an immediate versus a delayed reward. Those parts of the brain which are activated when people show impatient behavior, that is, preference of the immediate reward, have also been found to be activated when addicts are in a state of craving drugs and demonstrate a higher discount rate for drugs and money (Giordano et al., 2002). Delayed rewards on the other hand have been shown to activate a different area of the brain, which is associated with a high level of cognitive control and used for analytical processes (Dehaene, Dehaene-Lambertz & Cohen, 1998). These findings support the assumption that deciding in favor of the smaller, sooner reward in contrary to deciding for the larger, later reward involves different psychological processes.
4 Increased Attractiveness of Immediate Rewards
The first driver that received great attention from studies on intertemporal choice, is liquidity constraints, which constrained individuals often have to face. People who are financially deprived often have limited access to formal credit markets (Banerjee, 2003). This is reflected in high interest rates lenders charge them, as well as often being granted only a limited amount of credit, depending on their net worth or the assets one owns, indicating a higher probability of being liquidity-constrained (Banerjee, 2003). Limited access to credit markets causes individuals to be more vulnerable to financial shocks and decreases the ability to exercise control over their living conditions (Haushofer & Fehr, 2014). Not being able to borrow in exchange for future money may thus lead to a higher marginal utility of an immediate reward than a delayed one (Carvalho et al., 2016). That is, consumers who are liquidity constrained may value 1$ now greater than 1$ in the future, and also perceive its value higher compared to individuals who are not liquidity constrained, resulting in an increase of attractiveness of immediate rewards (Carvalho et al., 2016).
Another reasoning that has been discussed is that scarcity of monetary resources forces individuals to focus attention on the most acute needs, resulting in an increased time preference. Shah, Mullainathan & Shafir (2012) argued that scarcity, not only in financial terms, but also of other kinds e.g. of temporary nature, generates an own mindset, which elicits a shift of attention to some needs while disregarding others. This focus often moves to the most salient problems, while neglecting those who appear to be less urgent. Low-income consumers may thus emphasize current needs, such as buying food, paying rent etc. more heavily, while disregarding future necessities, such as savings for retirement, as they appear less pressing (Shah, Shafir & Mullainathan, 2015). This shift of attention may thus lead to an increased preference of immediate, compared to delayed rewards, since they help constrained consumers to cope with their current needs.
5
resources might lead to an urge to supply this need, similar to a craving for drugs, and shifts attention and motivation towards related items. Thus, poverty might increase focus on money, while also creating present-bias. In an intertemporal decision-making setting, this could help explaining the preference of financially constrained consumers of immediate rewards over delayed ones. While the delayed reward fails to fulfill this craving for immediate gratification, the immediate one provides the possibility to satisfy this desire, thereby increasing the attractiveness of the immediate reward compared to the delayed one.
Related to this, Mani, Mullainathan, Shafir and Zhao (2013) suggest that poverty depletes cognitive functions, leaving less mental resources for other concerns. What the researchers found is that participants of their study performed worse on tasks measuring cognitive abilities when they experienced material scarcity, compared to when they did not. The depletion of cognitive function may thus restrain individuals from making rational decisions (Shah et al., 2012). Shah et al. (2012) argue that due to higher vulnerability to mistakes, the poor show greater engagement in problem-solving tasks in situations of scarcity. Thus, they experience a higher cognitive load than individuals who are not financially constrained, which in turn reduces behavioral control on following economic choices (Spears, 2011). Muraven and Baumeister (2000) suggest that individuals only have a limited capacity of self-control, and exerting it for one task aggravates exerting it on subsequent tasks. This results in decreased self-control (and an increase of impulsiveness) of people who are financially constrained. Increased impulsivity might not per se increase the attractiveness of immediate rewards, as it is not a distinctive characteristic of the immediate reward itself, but rather a personality trait that comes into play when making intertemporal choices. It does however induce a decreased ability to delay gratification in comparison to not financially restricted consumers. Therefore, it is another explanation provided in literature, why constrained consumers tend to choose a smaller, sooner at the expense of a larger, later reward.
Based on these observations, it is expected that feeling financially constrained increases the attractiveness of immediate rewards compared to individuals, who are not financially constrained.
6 Decreased Attractiveness of Delayed Rewards
A second stream of literature, which observed causes of the myopia of constrained consumers, suggests that the decreased attractiveness of delayed rewards is causing this financial impatience, and will be discussed in the following.
Considering the time of receiving the two kinds of rewards indicates another reason why individuals, who are scarce on monetary rewards, tend to be more financially impatient. Delayed rewards are rewards, which one would receive in the future. The future however implies some degree of uncertainty. Even if it was successfully substantiated that a reward will be given in the future, there remains a risk that the reward will not be realized (Sozou, 1998). The most extreme case to demonstrate this may be that either the person who gives, or the person who receives the reward dies in the meantime, thus the reward wouldn’t be handed over. Another example could be that in the case of studies about intertemporal choice, the participant does not know the person, respectively the institution that offers the rewards. In this case, one might be more skeptical regarding credibility. Certainty about receiving a future reward is however an essential factor when deciding for a delayed pay-off at the expense of an immediate one (Jachimowicz, Chafik, Munrat, Prabhu & Weber, 2017). As suggested by Jachimowicz et al. (2017), financially constrained consumers may be more doubtful regarding receiving future rewards than non-constrained consumers. A study conducted by the researchers examined how the level of trust in communities, i.e. living in a high-trust community in contrary to living in a low-trust community, affects intertemporal decision-making of low-income individuals. Results of this study imply that a higher level of community trust favors more foresighted choices of financially constrained individuals, due to the belief that the community would buffer against financial shocks. They found a similar effect for the level of trust a person demonstrates in general, indicating that trust is an important factor influencing financial patience of constrained consumers (Jachimowicz et al., 2017).
7
uncertainty, suggests that the delayed reward is less appealing to these consumers. This indicates that the implied uncertainty of future rewards negatively affects the attractiveness of delayed rewards.
When comparing the two kinds of rewards, it becomes clear that the most distinct difference between them is immediacy and delay. Delay in this context can be pictured as the time that separates the offer of a reward and the actual reception of this reward. In the case of immediacy, offer and reception of the reward occur (almost) simultaneously. Thus, what resembles the most substantial differentiation between the two rewards is timing of the rewards. Time is therefore another factor, presumably the most important one in intertemporal choice, which is expected to influence the attractiveness of rewards, and ultimately the choice consumers make.
As discussed before, individuals are biased towards the presence, that is, they act impatiently in the present, but intend to behave patient in the future (Ainslie, 1975; Frederick, Loewenstein & O’Donoghue, 2002). This means, consumers tend to prefer 10$ today over 11$ tomorrow. When asked if they prefer 10$ in one year or 11$ in one year and one day however this preference tends to change in favor of the delayed reward (McClure et al., 2004). This shift of preference demonstrates that the mere presence of a delay, in contrary to the immediacy of the other option, has a critical impact on the attractiveness of the reward. When both rewards are offered in the future, keeping the temporal difference constant, this effect can be alleviated (Kirby & Santiesteban, 2003; Laibson, 1997). Related to this, studies have shown that people tend to discount the near future stronger than the distant future. This effect is known as hyperbolic discounting, a fundamental and robust finding in the literature of intertemporal choice (e.g. Zauberman et al., 2009). But why is it that people who are financially constrained have been shown to be more impatient over monetary rewards than people who are not scarce on monetary resources?
8
perception (Berry et al., 2015; Moreira, Pinto, Almeida & Barbosa, 2016; Wittmann & Paulus, 2008). Wittmann and Paulus (2008) suggest that impulsive individuals tend to overestimate temporal distance, leading to a preference of immediate rewards over delayed ones. One fairly recognized explanation for the effect of impulsivity on time perception is the assumption that an internal clock with a pacemaker generates subjective time perception units (Zakay & Block, 1997). Time perception can be increased by a faster pacemaker, and the pacemaker can be sped up by impulsivity, thus influencing subjective time perception (Pouthas & Perbal, 2004; Barrat, 1983). As discussed earlier, individuals who are scarce on monetary resources show a higher degree of impulsivity. This might be an indicator that feeling financially constrained has an influence on subjective time perception.
Another reasoning for this assumption can be provided when portraying financial constraints as cognitive load. As discussed before, poverty depletes cognitive functions due to higher vulnerability to making mistakes, and the emerging stress from this (Mani et al., 2013; Shah et al., 2012). This cognitive load, resulting from financial deprivation, has a negative influence on executive functions, which play an essential role in behaving in a self-regulatory and goal-oriented manner (Hall, Zhao & Shafir, 2014; Hofmann, Schmeichel & Baddeley, 2012). Studies who examined the effects of executive functions on behavior found individuals to be less patient and more impulsive when executive functions were impaired (Hinson, Jameson & Whitney, 2003; Bickel, Jarmolowicz, Mueller, Gatchalian & McClure, 2012). A different stream of literature suggests that brain areas, which are activated for executive functions, overlap with areas of the brain employed for future time perception (Foster et al., 2013; Wittmann et al., 2011). Patients, who suffer from illnesses that impair executive functions, show an overestimation of future time, i.e. they perceive a future duration to be longer compared to healthy individuals (Berlin, Rolls & Kischka, 2004; Berlin, Rolls & Iversen, 2005; Barkley, Edwards, Laneri, Fletcher & Metevia, 2001).
9
the same future distance to be longer, i.e. the waiting time until the reward will be received, the delayed reward will be less attractive to them than to not constrained consumers.
These findings suggest that, due to the implied uncertainty, and the increased subjective perception of waiting time until the delayed reward will be received, constrained consumers perceive the delayed reward less attractive, compared to not constrained consumers.
Hypothesis 2: Delayed rewards are less attractive to individuals, who feel financially constrained.
Hypothesis 3a: Feeling financially constrained increases the subjective perception of future time.
Hypothesis 3b: Increased subjective perception of future time decreases the attractiveness of delayed rewards.
The following study will examine these predictions, identifying if the increased attractiveness of immediate rewards, the decreased attractiveness of delayed rewards, or both cause the myopia of financially constrained consumers. The results of this study build a basis for the creation of interventions to overcome this financial impatience, and thereby support constrained individuals in escaping the poverty trap.
3. Research Design
Reviewing previous studies suggested that the increased impatience of constrained consumers may be due to two competing accounts. The myopia of these consumers may be due to the immediate reward being more attractive to them, compared to not constrained consumers (H1). Literature implies that the immediate reward has a higher utility to constrained consumers, and enables them to cope with needs that appear most pressing, resulting in an increased attractiveness of immediate rewards to constrained consumers. Other findings suggest that the decreased attractiveness of delayed rewards to constrained consumers, compared to not constrained consumers, may lead to the tendency of preferring a smaller, sooner reward to a larger, later one (H2). Previous studies indicate that the implied uncertainty of future rewards, as well as the increased perception of future waiting time may lead to this decreased attractiveness.
10
accounts however are not precluding. It may as well be that both of them occur, i.e. that constrained consumers find immediate rewards more, and delayed rewards less attractive than consumers who are doing financially well. These accounts were tested by separating both effects, and thus allowing to measure the attractiveness of each reward independently. It is further tested if constrained consumers perceive future time to be further away (H3a), and if differences in subjective perception of future time have a mediating effect on the attractiveness of delayed rewards (H3b).
3.1 Participants
In order to determine the necessary sample size for a 0.90 power study, a power analysis using GPower 3.1 was conducted (Faul, Erdfelder, Buchner & Lang, 2009). The results suggested a minimum sample size of 352 participants for identifying the desired effect. Thus, 405 participants were recruited from AmazonTurk, who were paid 0.70 US$ for taking the study. Demographical data and survey results were gathered using Qualtrics. A 2 (financially constrained vs. financially adequate; between-subjects) x 2 (immediate vs. delayed reward; within-subjects) x 2 (before vs. after manipulation; within-subjects) mixed factorial design was used (Aronson, Wilson & Brewer, 1998).
3.2 Measures and Procedure
Attractiveness of Immediate and Delayed Rewards
11
highly utilitarian function (Lea & Webley, 2006). Thus, additionally to measuring the affective influence money has on individuals (by indicating their happiness), its utilitarian component was also examined. For consistency with the analysis of the happiness ratings, the endpoints of the scale were labeled accordingly, ranging from “Not valuable at all” to “Extremely valuable”. Figure 1 visualizes the study design.
Fig. 1. Visualization of study design.
Financial Manipulation
As a between-subjects factor, participants were randomly assigned to either the financially constrained condition, or to the financially adequate condition. In both conditions, participants were asked to provide demographical information regarding their age, gender, household size and income. A bar was used to indicate participant’s monthly income in US Dollar. The scales of the bar however were different for the two conditions:
In the financially constrained condition, the endpoints of the bar were labeled “$0” on the left side, and “$50,000 or more” on the right side. As a result, the indicated income had to be placed at the very left of the scale, suggesting a feeling of financial deprivation compared to others. In the financially adequate condition, the scale ranged from “$0” to “$2,000 or more”. The maximum of the scale is thus 25 times lower than in the constrained condition. On this bar, participants mostly located their income at, or close to the end of the scale, implying a feeling of doing financially well.
On the next page all participants saw a simulated calculating process, stating that their relative financial standing and well-being was calculated. After five seconds, the page automatically skipped to the “result” of this fictitious calculation.
12
provided by other individuals in a large database of U.S. citizens. Subsequently, they were asked to write about factors, which limit their financial resources (e.g. rent, mortgage, etc.), and reflect on which consequences this financial deprivation has on their life.
Simultaneously, participants in the financially adequate condition received the feedback that they are performing financially adequate, and have sufficient monetary resources at hand, compared to other U.S. citizens1. Like in the constrained condition, participants were asked to write about how it feels to be financially adequate and to have a sufficient amount of money to use at their will or when required in daily life, relative to other people who do not.
Writing a short essay and reflecting on the financial feedback participants received was included in the manipulation to intensify its effect. This was an extension of the financial manipulation employed by Briers and Laporte (2013).
Measuring Subjective Time Perception
The next part of the study tested if individuals in the constrained condition perceive time differently compared to participants in the financial adequacy condition, and thus possibly explain constrained consumers finding delayed rewards less attractive. For this purpose, we presented a bar ranging from “very short” on the left end to “very long” on the right end, and asked participants to indicate on how short or long they perceived the duration between today and a day three months in the future. The same procedure was repeated for a duration of six months.
4. Results
During the data cleaning process cases were identified which failed the checks for attention or did not follow instructions. These cases, as well as cases with outlier values, were excluded from the analysis. As a result, 363 participants were used for analysis, with 184 participants in the financially constrained condition, and 179 participants in the financially adequate condition. This section will first address the analysis of ratings regarding happiness about, and perceived value of immediate and delayed rewards. Followed by that, subjective time perception and its mediating role in this context will be analyzed.
1 Note: Participants in the financial adequacy condition were not told that they are performing financially better
13
4.1 Analysis of Happiness Ratings
After cleaning the data, a repeated measure ANOVA was conducted. First, happiness ratings
before the financial manipulation were observed, with timing of reward (immediate vs. delayed)
as within-subjects factors, and the financial condition (financially constrained vs. financially adequate) as between-subjects factors. The results did not reveal a significant interaction effect between groups in their ratings of happiness about receiving an immediate, respectively a delayed reward (F(1,361)=1.988, p=.159, η2=0.005). This indicates that there is no significant difference before manipulation between the groups in general happiness about receiving a reward. A significant main effect for the type of reward was observed (F(1,361)=332.320,
p=.000, η2=0.479), showing that deferred rewards were discounted. Followed by that, a three-factor repeated measure ANOVA on happiness ratings was performed, by additionally including the timing of measurement (before vs. after manipulation) as a second within-subjects factor. This analysis revealed a significant three-way interaction between timing of reward, timing of measurement and the financial manipulation (F(1, 361)= 20.414, p=.000, η2=0.054). In order to analyze this interaction in greater detail, a repeated measure ANOVA on the difference between the financially adequate and constrained condition was performed, using timing of reward (immediate vs. delayed) as within, and financial condition (financially adequate vs. constrained) as between-subjects factor. As indicated previously, there was no significant difference in ratings of the immediate (F(1,361)=1.945, p=.164, η2=0.005), nor the delayed reward (F(1,361)=0.115, p=.735, η2=0.000) before the financial manipulation between the two groups.
After manipulation both the main effect of type of reward (F(1,361)=256.166, p=.000, η2=0.415), and the interaction between type of reward and financial condition
14
happier about an immediate, and significantly less happy about a delayed reward, compared to participants who were in the financial adequacy condition.
Fig. 2. Happiness Ratings after financial manipulation.
In order to identify what causes these significant differences in happiness for both rewards, a different perspective on analyzing the data is taken. Before manipulation, no financial cues were made salient to the participants, thus ratings before manipulation can be portrayed as ratings of a control group. By identifying how these ratings change once financial cues (feelings of financial constraints vs. adequacy) were made salient, further insights are provided on how financial cues influence this difference in happiness, and ultimately the observed difference in patience. Therefore, as a second step, it was examined how the ratings change before, in comparison to after financial manipulation, by looking at each reward separately. A repeated measure ANOVA on happiness ratings of the immediate reward was conducted, with time of measurement (before vs. after manipulation) as within-subjects factor, and financial condition (financially adequate vs. constrained) as between-subjects factor. The results did not show a significant main effect of timing of measurement (F(1, 361)=0.879, p=.349, η2=0.002) and a
marginally significant interaction of the two variables (F(1,361)=3.182, p=0.075, η2=0.009).
Contrast analysis revealed a marginally significant decrease in happiness ratings about receiving an immediate reward after compared to before manipulation for the financially adequate condition (Mbefore=89.464, SDbefore=0.962; Mafter=88.503, SDafter=1.007; F(1,
361)=3.652, p=.057, η2=0.010) (see Figure 3). In the constrained condition no significant difference in happiness ratings of the immediate reward before vs. after manipulation was found (Mbefore=91.348, SDbefore=0.949; Mafter=91.647, SDafter=0.993; F(1, 361)=0.363, p=.547,
15
Subsequently a repeated measure ANOVA for the delayed rewards was performed, keeping time of measurement as within, and financial condition as between-subjects factor. A significant main effect of the timing of measurement (F(1,361)=10.310, p=.001, η2=0.028), as well as a
significant interaction between time of measurement and financial condition (F(1,361)=15.934,
p=.000, η2=0.042) was detected. Participants in the financial adequacy condition showed a significant increase in happiness after the financial manipulation (Mbefore=74.011,
SDbefore=1.484; Mafter=77.972, SDafter=1.553; F(1,361)=25.587, p=.000, η2=0.066), indicating
that they were significantly happier about the delayed reward after the financial manipulation, compared to before (see Figure 3). Ratings of the constrained condition did not differ significantly at different times of measurements (Mbefore=73.304, SDbefore=1.464; Mafter=72.875,
SDafter=1.532; F(1,361)=0.309, p=.579, η2=0.001).
Fig. 3. Happiness Ratings of the immediate and delayed reward.
16
tend to be more impatient in intertemporal decision-making tasks. That means, if constrained consumers are significantly happier about an immediate reward, and significantly less happy about a delayed one, the increased tendency to prefer an immediate to a delayed reward appears comprehensible. However, the observed difference in financial patience between the two conditions does not result from a change of attractiveness of the rewards, once individuals feel financially constrained, i.e. by a change of happiness ratings from the constrained condition before compared to after manipulation. Instead, results suggest that feeling financially adequate causes this effect by increasing patience, while feeling constrained does not significantly change the level of patience of participants.
Fig. 4. Happiness Ratings before and after manipulation.
4.2 Robustness Check
In order to find out if the observed significant three-way interaction of time of measurement, time of reward, and financial condition is robust, potential covariates were included in order to control for them. A one way ANOVA with the potential covariate as dependent variable, and the financial condition as independent variable revealed the following relations (see Table 1).
Financially adequate Financially constrained F-value p-value Positive Affect M=3,1312 SD=0,9193 M=2,6837 SD=0,9007 21,954 ,000 Negative Affect M=1,4162 SD=0,6066 M=1,7577 SD=0,7869 1845,026 ,000 Mastery M=5,5573 SD=0,9736 M=5,0258 SD=1,2660 20,022 ,000 Perceived Constraints M=2,8568 SD=1,3436 M=3,6202 SD=1,4507 27,021 ,000
17
Positive and negative affect were measured using the PANAS scale. Mastery and perceived constraints were each assessed on a 7-point Likert scale. All of these variables were measured after the financial manipulation, thus it is reasonable that a significant difference between the conditions can be observed. Conducting a three-factor repeated measure ANOVA, and controlling separately for positive affect, negative affect, mastery, perceived constraints, and other variables like age, gender and income as covariates still resulted in a significant three-way interaction between time of measurement, timing of reward and financial condition. This indicates that the interaction between these three factors is robust.
4.3 Analysis of Perceived Value Ratings
After that, the same procedure was applied to analyze how valuable participants rated the raffle win. As for the happiness ratings, before manipulation there was no significant interaction between the time of reward and the financial condition (F(1,361)=2.548 , p=.111, η2=0.007), suggesting that participants perceived rewards equally valuable before manipulation. A three-factor repeated measure ANOVA revealed a non-significant three-way interaction between timing of reward, time of measurement and financial condition (F(1,361)=1.344 , p=.247,
η2=0.004).
To explore the data further, a repeated measure ANOVA was conducted with timing of reward as within, and financial condition as between-subjects factor. Before manipulation a significant main effect of timing of reward (F(1,361)=168.821, p=.000, η2=0.319) and a non-significant
interaction of timing of reward by financial manipulation was found (F(1,361)=2.548, p=.111,
η2=0.007). The analysis revealed a significant difference between ratings of the constrained
(M=85.804, SD=1.306) and financially adequate condition for the immediate reward (M=82.140, SD=1.324; F(1,361)=3.884, p=.050, η2=0.011). Ratings of the delayed reward were not significantly different between groups before manipulation (Mconstrained=72.288,
SDconstrained=1.642; Madequate=71.581, SDadequate=1.665; F(1,361)=0.091, p=.763, η2=0.000).
After manipulation, both main (F(1,361)=194.647, p=.000, η2=0.350) and interaction effect (F(1,361)=6.429, p=.012, η2=0.017) were significant. The constrained condition (M=89,076,
SD=1.229) again rated the immediate reward as more valuable than the financially adequate
condition (M=83.777, SD=1.246; F(1,361)=9.168, p=.003, η2=0.025) (see Figure 5). The groups however did not significantly differ in their ratings regarding the delayed reward (Mconstrained=74.973, SDconstrained=1.583; Madequate=74.011, SDadequate=1.605; F(1,361)=0.182,
18
Fig. 5. Perceived Value Ratings after financial manipulation.
Followed by that, a two-factor repeated measure ANOVA was performed separately for the immediate and the deferred reward. For the immediate reward, a significant main effect of time of measurement (F(1,361)=26.758, p=.000, η2=0.069) and a marginally significant interaction between timing of measurement and financial condition was observed (F(1,361)=2.968 ,
p=.086, η2=0.008). Participants in the financial adequacy condition perceived the value of the immediate reward after manipulation (M=83.777, SD=1.246) as more valuable compared to before (M=82.140, SD=1.324; F(1,361)=5.870 , p=.016, η2=0.016) (see Figure 6). The same
pattern could be observed for the constrained condition, when comparing ratings before (M=85.804, SD=1.306) and after manipulation (M=89.076, SD=1.229; F(1,361)=24.107,
p=.000, η2=0.063).
For the delayed reward, a significant main effect was found (F(1,361)=24.855, p=.000,
η2=0.064). The overall interaction effect of time of measurement by financial condition was not
significant (F(1,361)=0.602, p=.804, η2=0.000). However, contrast analysis revealed a significant difference in ratings of the financial adequacy condition before (M=71.581,
SD=1.665) compared to after manipulation (M=74.011, SD=1.605; F(1,361)=11.069, p=.001, η2=0.030). Significance was also found for the financially constrained condition when
contrasting before (M=72.288, SD=1.642) and after manipulation ratings (M=74.973,
19
Fig. 6. Ratings of the perceived value before and after manipulation.
4.4 Analysis of Subjective Time Perception
As a next step, subjective time perception was examined. For this purpose, a repeated measure ANOVA with future time perception (3 and 6 months) as within-subjects factor, and financial condition as between-subjects factor was conducted. The analysis revealed a significant main effect of financial manipulation (F(1, 361)=12.127, p=.001, η2=0.033), suggesting that participants in the constrained condition perceived the same future duration as further away than participants in the financial adequacy condition, providing support for Hypothesis 3a (see Figure 7). The interaction between the two variables was not significant (F(1, 361)=0.112,
p=.738, η2=0.000), indicating that the effect of financial manipulation did not vary across different durations.
20
4.5 Analysis of the Mediating Role of Subjective Time Perception
As a final step, it was examined if subjective time perception mediates the effect of financial condition on the attractiveness of delayed reward. Since participants solely rated the attractiveness of a delayed reward, which they would receive in 3 months, only the ratings of the corresponding future distance were included as a mediator. To examine a possible mediation, PROCESS model 4 from Hayes was employed, using the financial condition as predictor, and subjective time perception as mediator.
The total effect of financial condition on happiness about receiving a delayed reward after manipulation was significant (p=.020). The 95% confidence interval of the indirect effect did not include zero (95% CI [-3.358; -0.730]), thus the indirect effect was significant as well, while the direct effect was not (p=.139) (see Figure 8). These results suggest that the influence of financial condition on happiness about the delayed reward (after manipulation) is mediated by subjective time perception, thereby finding support for Hypothesis 3b. Figure 8 displays the beta coefficients and significance values for each path in the mediation model.
Fig. 8. Mediation model on happiness ratings of the delayed reward after manipulation.
To rule out that the observed mediation was already happening before the financial manipulation, happiness ratings regarding the delayed before manipulation were used as a dependent variable in the second step. This analysis did not show a significant total effect (p=.735). Thus, before manipulation, subjective time perception was not mediating the effect of financial condition on happiness about the delayed reward.
21
confidence interval for the indirect effect however included zero (95% CI [-0.201; 0.932]), thus the effect of financial manipulation on happiness regarding an immediate reward was not mediated by subjective time perception. Before manipulation, there was also no mediation found due to a non-significant total effect of the financial condition on ratings of the immediate reward before manipulation (p=.164). Concluding, subjective time perception was neither before, nor after manipulation mediating the effect of financial manipulation on happiness regarding the immediate reward.
Fig. 9. Mediation model on happiness ratings of the immediate reward after manipulation.
Neither before, nor after the manipulation did the mediation analysis on the perceived value of the delayed reward show a significant total effect (pBefore=.763; pAfter=.670), indicating that
subjective time perception was not mediating this effect. This is not surprising, since there was no significant difference between groups in ratings regarding the perceived value of the delayed reward detected in the first place.
22
Fig. 10. Moderated mediation model on happiness ratings of the delayed reward after manipulation.
The same analysis was performed using happiness about immediate reward, perceived value of immediate reward, and perceived value of delayed value, each of them after manipulation, as dependent variable. However, none of these examinations showed a significant moderated mediation effect.
5. Discussion
The results suggest that there is a significant difference in happiness about receiving a reward at different points of time between consumers who are financially constrained in comparison to those who are not. This research thus contributes to the findings of multiple previous studies, which observed greater impatience of constrained consumers in intertemporal decision-making tasks (see e.g. Yesuf & Bluffstone, 2008; Carvalho et al., 2016; Dean & Sautmann, 2014). Individuals who are scarce on monetary resources are significantly happier about receiving an immediate reward, and significantly less happy about a delayed reward compared to individuals who are financially adequate. These findings indicate why constrained consumers are more impatient in receiving gratification than not constrained consumers, that is, why they are more likely to choose the immediate over the delayed reward.
23
lowered their discount rate of the delayed reward after manipulation. Thereby, they demonstrated a lower sensitivity to delays compared to constrained individuals, resulting in an increase of patience compared to before. This means, delaying gratification, and thus being more patient, became significantly more appealing to individuals, as soon as they felt financially adequate.
The effect of financial condition on delayed rewards was found to be fully mediated by subjective time perception, highlighting the important role of this factor in intertemporal choice contexts. Constrained individuals were found to perceive future time to be further away than not-constrained ones, providing a possible explanation why they find the delayed reward less attractive than financially adequate individuals do. However, it might be, that opposed to the prediction that financial constraints make individuals perceive the future as more distant, it rather is that feeling financially adequate makes the future appear as closer. Which of these effects actually appears could be subject of future research.
Ratings on how valuable participants perceived the rewards did not show a significant interaction between time of measurement, time of reward, and financial condition. However, it could be observed that the constrained condition perceived the immediate reward as more valuable than the adequate condition, after they received feedback on their financial statement. That individuals, who are reminded of their critical financial situation, would perceive an immediate reward as more valuable, compared to not constrained individuals, is in line with expectations (see e.g. Carvalho et al., 2016).
24
5.1 Limitations
Some limitations to this research have to be considered. First, it should be taken into account that the study was performed using hypothetical rewards. Although it can not be ruled out that real rewards would have lead to different behavior of the participants, previous literature suggests that hypothetical rewards can operate as a valid surrogate for real rewards (e.g. Johnson & Bickel, 2002; Lagorio & Madden, 2005; Madden, Begotka, Raiff & Kastern, 2003). Another aspect that should be taken into account is that the indicated win of 100$ in the study design might have been too small to find the expected results. Once participants reflected on living a constrained life, 100$ might appear as too small to make a difference to their delicate situation, thus not appearing as valuable in helping them coping with their concerns. Future research may therefore also examine how results change with a higher monetary reward, that offers constrained consumers a possibility to cope with their problems, and may thus be perceived as more valuable.
Lastly, the study only tested the attractiveness of future rewards, that will be received in three months. According to literature on hyperbolic discounting, future durations are not discounted linearly, and lack a constant discount rate (e.g. Zauberman et al., 2009). To rule out that the observed tendencies change with other timeframes, it is recommended to further investigate the attractiveness of rewards for timeframes that lie farther in the future.
5.2 Managerial Implications
The relevance of this study’s findings is twofold. On the one hand, they are relevant for public policy, as the observed results provide a basis for supporting constrained consumers in escaping the poverty trap. Results suggest that, in order to help individuals who are financially restricted in making more foresighted decisions when facing intertemporal choices in life, the focus should not primarily lie on educating them regarding the long-term benefits from delaying gratification. Instead, the aim should be to reduce the feeling of monetary scarcity, and generate a feeling of financial adequacy for these individuals. Public programs could thus focus on increasing security perceptions, for example by implementing programs, which protect the poor from financial shocks, or increase trust in communities, as suggested by Jachimowicz et al. (2017). It is expected that such strategies would lead to a decreased feeling of uncertainties and risks, which constraint consumers have to face in everyday life, and consequently lead to an increased feeling of financial adequacy.
25
References
Ainslie, G. (1975). Specious reward – behavioral theory of impulsiveness and impulse control.
Psychol. Bull. 82, pp. 463–496
Aronson, E., Wilson, T.D. and Brewer, M. B. (1998). The Handbook of Social Psychology. Boston: McGraw-Hill.
Banerjee, A. in Advances in Economics and Econometrics: Theory and Applications, Eighth World Congress, L. Hansen, M. Dewatripont, S. Turnovsky, Eds. (Cambridge Univ. Press, Cambridge, 2003), vol. 3., chap. 1.
Barkley, R. A., Edwards, G., Laneri, M., Fletcher, K. and Metevia, L. (2001). Executive functioning, temporal discounting, and sense of time in adolescents with attention deficit hyperactivity disorder (ADHD) and oppositional defiant disorder (ODD). J. Abnorm.
Child Psychol., 29, pp. 541–556.
Barratt, E. (1983). The biological basis of impulsiveness: the significance of timing and rhythm disorders. Personality and Individual Differences, 4(4), pp.387-391.
Bechara, A. (2005). Decision making, impulse control and loss of willpower to resist drugs: a neurocognitive perspective. Nature Neuroscience, 8(11), pp. 1458-1463.
Berlin, H., Rolls, E. and Iversen, S. (2005). Borderline Personality Disorder, Impulsivity, and the Orbitofrontal Cortex. American Journal of Psychiatry, 162(12), pp.2360-2373. Berlin, H., Rolls, E. and Kischka, U. (2004). Impulsivity, time perception, emotion and
reinforcement sensitivity in patients with orbitofrontal cortex lesions. Brain, 127(5), pp.1108-1126.
Berns, G., Laibson, D. and Loewenstein, G. (2007). Intertemporal choice – toward an integrative framework. Trends in Cognitive Sciences, 11(11), pp. 482-488.
Berry, M., Repke, M., Nickerson, N., Conway, L., Odum, A. and Jordan, K. (2015). Making Time for Nature: Visual Exposure to Natural Environments Lengthens Subjective Time Perception and Reduces Impulsivity. PLOS ONE, 10(11), e0141030.
Briers, B. and Laporte, S. (2013). A Wallet Full of Calories: The Effect of Financial Dissatisfaction on the Desire for Food Energy. Journal of Marketing Research, 50(6), pp. 767-781.
Carvalho, L., Meier, S. and Wang, S. (2016). Poverty and Economic Decision-Making: Evidence from Changes in Financial Resources at Payday. American Economic
Review, 106(2), pp. 260-284.
Daniel, T., Stanton, C. and Epstein, L. (2013). The future is now: Comparing the effect of episodic future thinking on impulsivity in lean and obese individuals. Appetite, 71, pp.120-125.
Dean, M. and Sautmann, A. (2014). Credit Constraints and the Measurement of Time Preferences. SSRN Electronic Journal.
Dehaene, S., Dehaene-Lambertz, G. and Cohen, L. (1998). Abstract representations of numbers in the animal and human brain. Trends in Neurosciences, 21(8), pp. 355-361.
Dohmen, T., Falk, A., Huffman, D., Sunde, U., Schupp, J. and Wagner, G. G. (2011). Individual risk attitudes: Measurement, determinants, and behavioral consequences. Journal of the
European Economic Association, 9(3), pp. 522-550.
Faul, F., Erdfelder, E., Buchner, A. and Lang, A. (2009). Statistical power analyses using G*Power 3.1: Tests for correlation and regression analyses. Behavior Research
Methods, 41(4), pp. 1149-1160.
Fisher, I. (1930). The theory of interest. New York: MacMillan.
Foster, S., Kisley, M., Davis, H., Diede, N., Campbell, A. and Davalos, D. (2013). Cognitive function predicts neural activity associated with pre-attentive temporal processing. Neuropsychologia, 51(2), pp.211-219.
Frederick, S., Loewenstein, G. and O’Donoghue, T. (2002). Time Discounting and Time Preference: A Critical Review. Journal of Economic Literature, 40(2), pp. 351-401. Gollier, C. in Household Portfolios, L. Guiso, M. Haliassos, T. Jappelli, Eds. (MIT Press,
Cambridge, MA, 2001), chap. 1.
Guiso, L. and Paiella, M. (2008). Risk Aversion, Wealth, and Background Risk. Journal Of The
Giordano, L., Bickel, W., Loewenstein, G., Jacobs, E., Marsch, L. and Badger, G. (2002). Mild opioid deprivation increases the degree that opioid-dependent outpatients discount delayed heroin and money. Psychopharmacology, 163(2), pp. 174-182.
Hall, C., Zhao, J. and Shafir, E. (2013). Self-Affirmation Among the Poor. Psychological
Science, 25(2), pp.619-625.
Hardisty, D. and Pfeffer, J. (2017). Intertemporal Uncertainty Avoidance: When the Future Is Uncertain, People Prefer the Present, and When the Present Is Uncertain, People Prefer the Future. Management Science, 63(2), pp. 519-527.
Harrison, G., Lau, M. and Williams, M. (2002). Estimating Individual Discount Rates in Denmark: A Field Experiment. American Economic Review, 92(5), pp. 1606-1617. Haushofer, J. and Fehr, E. (2014). On the psychology of poverty. Science, 344(6186), pp.
861-867.
Hinson, J., Jameson, T. and Whitney, P. (2003). Impulsive decision making and working memory. Journal of Experimental Psychology: Learning, Memory, and Cognition, 29(2), pp.298-306.
Hofmann, W., Schmeichel, B. and Baddeley, A. (2012). Executive functions and self-regulation. Trends in Cognitive Sciences, 16(3), pp.174-180.
Jachimowicz, J. M., Chafik, S., Munrat, S., Prabhu, J. C. and Weber, E. U. (2017). Community trust reduces myopic decisions of low-income individuals. Proceedings of the National
Academy of Sciences, 114(21). pp. 5401-5406.
Johnson, M. and Bickel, W. (2002). Within-subject comparison of real and hypothetical money rewards in delay discounting. Journal of the Experimental Analysis of Behavior, 77(2), pp.129-146.
Kim, J., Sorhaindo, B. and Garman, E. (2006). Relationship between Financial Stress and Workplace Absenteeism of Credit Counseling Clients. Journal of Family and Economic
Issues, 27(3), pp. 458-478.
Kim, B. K. and Zauberman, G. (2009). Perception of anticipatory time in temporal discounting.
Kim, B. and Zauberman, G. (2013). Can Victoria's Secret change the future? A subjective time perception account of sexual-cue effects on impatience. Journal Of Experimental
Psychology: General, 142(2), pp. 328-335.
Kirby, K. and Santiesteban, M. (2003). Concave utility, transaction costs, and risk in measuring discounting of delayed rewards. Journal Of Experimental Psychology: Learning,
Memory, and Cognition, 29(1), pp. 66-78.
Lagorio, C. and Madden, G. (2005). Delay discounting of real and hypothetical rewards III: Steady-state assessments, forced-choice trials, and all real rewards. Behavioural
Processes, 69(2), pp.173-187.
Laibson, D. (1997). Golden Eggs and Hyperbolic Discounting. The Quarterly Journal Of
Economics, 112(2), pp. 443-478.
Lawrance, E. (1991). Poverty and the Rate of Time Preference: Evidence from Panel Data. Journal Of Political Economy, 99(1), pp. 54-77.
Lea, S. and Webley, P. (2006). Money as tool, money as drug: The biological psychology of a strong incentive. Behavioral and Brain Sciences, 29(02), pp. 161-209.
Loewenstein, G. (1996). Out of Control: Visceral Influences on Behavior. Organizational
Behavior and Human Decision Processes, 65(3), pp. 272-292.
Lopez, R., Hofmann, W., Wagner, D., Kelley, W. and Heatherton, T. (2014). Neural Predictors of Giving in to Temptation in Daily Life. Psychological Science, 25(7), pp. 1337-1344. Madden, G., Begotka, A., Raiff, B. and Kastern, L. (2003). Delay discounting of real and
hypothetical rewards. Experimental and Clinical Psychopharmacology, 11(2), pp.139-145.
Mani, A., Mullainathan, S., Shafir, E. and Zhao, J. (2013). Poverty Impedes Cognitive Function. Science, 341(6149), pp. 976-980.
McClure, S., Laibson, D., Loewenstein, G. and Cohen, J. (2004). Separate Neural Systems Value Immediate and Delayed Monetary Rewards. Science, 306(5695), pp. 503-507. Moreira, D., Pinto, M., Almeida, F. and Barbosa, F. (2016). Time perception deficits in
Muraven, M. and Baumeister, R. (2000). Self-regulation and depletion of limited resources: Does self-control resemble a muscle?. Psychological Bulletin, 126(2), pp. 247-259. Neal R. D., Lawlor D. A., Allgar V., Colledge, M., Ali, S., Hassey, A., Portz, C. and Wilson,
A. (2001). Missed appointments in general practice: retrospective data analysis from four practices. British Journal of General Practice, 51, pp. 830-832.
Nielsen, U. (2001). Poverty and attitudes towards time and risk - experimental evidence from Madagascar. Royal Veterinary and Agricultural University of Denmark Working Paper. Pender, J. (1996). Discount rates and credit markets: Theory and evidence from rural
India. Journal Of Development Economics, 50(2), pp. 257-296.
Pouthas, V. and Perbal, S. (2004). Time perception does not only depend on accurate clock mechanisms but also on unimpaired attention and memory processes. Acta Neurobiol.
Exp., 64, pp. 367–385.
Shah, A., Mullainathan, S. and Shafir, E. (2012). Some Consequences of Having Too Little.
Science, 338(6107), pp. 682-685.
Shah, A. K., Shafir, E. and Mullainathan, S. (2015). Scarcity frames value. Psychological
Science, 26(4), pp. 402–412.
Sozou, P. (1998). On hyperbolic discounting and uncertain hazard rates. Proceedings Of The
Royal Society B: Biological Sciences, 265(1409), pp. 2015-2020.
Spears, D. (2011). Economic Decision-Making in Poverty Depletes Behavioral Control. The
B.E. Journal Of Economic Analysis and Policy, 11(1).
Sze, Y., Stein, J., Bickel, W., Paluch, R. and Epstein, L. (2017). Bleak Present, Bright Future: Online Episodic Future Thinking, Scarcity, Delay Discounting, and Food Demand. Clinical Psychological Science, 5(4), pp.683-697.
Tanaka, T., Camerer, C. and Nguyen, Q. (2010). Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam. American Economic
Review, 100(1), pp. 557-571.
Wittmann, M. (2009). The inner experience of time. Philosophical Transactions of the Royal
Society Series B: Biological Sciences, 364(1525), pp. 1955–1967.
Wittmann, M., Simmons, A., Flagan, T., Lane, S., Wackermann, J. and Paulus, M. (2011). Neural substrates of time perception and impulsivity. Brain Research, 1406, pp.43-58. Yesuf, M. and Bluffstone, R. (2008). Wealth and time preference in rural Ethiopia. EfD
discussion paper 08-16, the Environment for Development Initiative and Resources for the Future (www.rff.org), Washington DC.
World Bank Group (2016). Poverty and Shared Prosperity 2016. Herndon: World Bank Publications.
World Health Organization (2015). World health statistics 2015. Geneva: World Health Organization Press.
Zakay, D. and Block, R. (1997). Temporal Cognition. Current Directions in Psychological
Science, 6(1), pp. 12-16.
Zauberman, G., Kim, B., Malkoc, S. and Bettman, J. (2009). Discounting Time and Time Discounting: Subjective Time Perception and Intertemporal Preferences. Journal of
