11/17/2007

I Want It Now!

Economists are starting to study the impact that instant gratification plays in peoples’ decision making habits. For example, if you offer someone $100 today or $110 tomorrow, almost everyone would say they would take the higher amount of money tomorrow in order to receive a one day ten percent return. Though when really offered $100 today or $110 tomorrow, it seems that most people take the money that is offered today. Therefore, is there an increased benefit that is derived from having something today that we could just as likely have tomorrow? The answer to this question is starting to be yes. Though it may seem that people are merely stupid and make poor decisions at certain times, maybe these people are not idiots, but rather rational thinkers that put a large value on the amount of benefit they receive from having things immediately. Many people seem to be adopting this I do not care how, I want it now attitude. What are you willing to pay for instant gratification?

5 comments:

Logan said...
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Logan said...

I think you are on to something with the predictability of choices that the average person makes regarding taking the money now. What the future value of the money will be determines whether it is a rational choice.

You may be seeing a general mistrust by the receiver of the offerer that the money will actually come to them tomorrow. Also, there is a myriad of other circumstances that may prevent the receiver from being available to receive and or utilize the money if it is to be received later.

I feel this general sentiment can be explained by the old saying that 'a bird in the hand is worth 2 in the bush.' This is one reason that people have a hard time saving for retirement because the future state of the market is so unpredictable. Who knows how much that money will actually be worth in the future compared to today's dollars.

Caden said...

I think that we can see evidence of this right here in St. George. How many check cashing stores have moved into the area recently. I can think of at least 5 in the last 18 months. I was in a store like that today visiting with a friend who works there (I was not borrowing money) and saw that if you borrow $100 for 6 days you pay over 1200% interest on that money.

Dr. Tufte said...

There's a lot more to this literature than what is in Harford's article.

The simpler idea is that we discount each passing moment at the same rate - these are called geometric time preferences.

The newer alternative is that we discount the near future more quickly - these are called hyperbolic time preferences.

In either case you want something now a lot more, but it is more accentuated in the hyperbolic case.

One issue worth remembering is that we're not really sure that the added detail in hyperbolic preferences adds anything to our underlying economic thinking.

William said...

I think there is some very strong truth to this. People these days are so focused on the now and not the future. I mean look at how many people are in debt and how few people have retirement plans. Whatever happened to patience? I think that our society is getting more and more focused on immediate gratification. I also think that over time this is going to cause many problems in the long run.