The Role of Delayed Consequences in Human Decision-Making

Abstract

People make many decisions with consequences that are delayed, rather than imme- diate. Of particular interest are decisions in which long-term gains must be balanced against short-term costs. Such time trade-offs can be advantageous or deleterious to the decision-maker: the decision to abstain from immediately entering the labor force and instead pursuing a lengthy education benefits the educated in the long-term although their short-term wages are lowered. In contrast, the decision to overeat in- creases the short-term enjoyment of food but decreases long-term health. A large body of research in psychology has shown that the ability to delay gratification and elect long-term over short-term gains leads to superior life outcomes.

Expanding on this tradition, my thesis examines time-tradeoffs in two domains: first, I examine the resolution of time-tradeoffs in settings in which people are asked to explicitly decide between short-term and long-term gains. This line of work is closely connected to economic models of decision-making that account for the role of time in shaping decisions. I then transition to examining the resolution of time-tradeoffs in settings in which time trade-offs are implicit. Specifically, I examine the way in which people explore unfamiliar environments in order to maximize information. Maximiz- ing information represents a time-tradeoff because the goal of obtaining information generally requires the decision-maker to eschew known sources of short-term rewards in order to explore new options whose benefits will be reaped only in the long-term.

Collectively, I describe a large body of experiments that examine these two classes of decision-making and put forward two new models of decision-making, the ITCH model of intertemporal choice and the MaxInfo model of exploratory decision-making, that account for the data from these experiments and extend the state of the art.