Grantee Research Project Results
2000 Progress Report: Understanding Observed Differences in Time-Preference Rates
EPA Grant Number: R827931Title: Understanding Observed Differences in Time-Preference Rates
Investigators: Gregory, Robin , Slovic, Paul , Finucane, Melissa L. , Peters, Ellen , Knetsch, Jack , Arvai, Joseph , Burns, Katie , Lichtenstein, Sarah
Current Investigators: Gregory, Robin , Slovic, Paul , Knetsch, Jack , Lichtenstein, Sarah , Finucane, Melissa L. , Peters, Ellen , Arvai, Joseph , Burns, Katie
Institution: Decision Science Research Institute Inc.
Current Institution: Decision Science Research Institute Inc. , The Ohio State University , University of Oregon
EPA Project Officer: Chung, Serena
Project Period: September 30, 1999 through September 29, 2001 (Extended to March 31, 2003)
Project Period Covered by this Report: September 30, 1999 through September 29, 2000
Project Amount: $228,463
RFA: Decision-Making and Valuation for Environmental Policy (1999) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
The primary project objective is to improve understanding of whether and why people may discount future gains or future losses, as well as different types of future outcomes, at different rates. Results of the project could influence the analysis of initiatives to protect the natural environment and public health and contribute to a reconsideration of the conventional discounting practices of economic benefit-cost and policy analysis.Progress Summary:
The first year of the research has focused on three questions. The first is to see if there are systematic differences in expressed time preferences depending on whether questions are framed as gains or as losses. In terms of the four-quadrant diagram we've been using (see below), this means a comparison between Quadrant I (the standard willingness to pay [WTP] quadrant) and Quadrant III (the standard willingness to accept [WTA] quadrant). Based on earlier experimental results that did not involve comparisons across time periods, our expectation was that discount rates for Quadrant I (gains) would be significantly higher than for Quadrant III (losses), and our initial results demonstrate this. Responses for Quadrants II and IV are, as expected, intermediate, but these quadrants are rarely appropriate for valuation purposes.
Quadrant I (WTP) |
Gain
Quadrant II (choice of gains) |
-Money
Quadrant IV (choice of losses) |
+Money
Quadrant III
(WTA) Loss |
Example of a four-quadrant diagram for displaying gains and losses over time.
The second research question initially asked whether there are systematic differences in expressed time preferences for different types of goods, specifically environmental, health, and financial goods. As the study evolved, we realized that something more fundamental than the type of good was at work. We believe this more fundamental difference could have to do with the emotional or affective response elicited by the item, although our current experiments also are considering the role of fairness and social/community interests. The more general point is that the context for the time preference task clearly matters, and ongoing experiments seek to understand more clearly the associated reasons and mechanisms.
The third research question involves taking these results into the domain of specific policy questions relevant to an agency such as EPA. This concern has guided our selection of examples and the experimental focus. A first round of experiments, conducted in March 2000, focused on pre-tests of questions comparing time preferences rates for changes coded as either gains or losses. The second, in November 2000, built on the lessons of these earlier tests and also asked questions about time preferences for different types of goods and in different contexts.
Future Activities:
Our research continues to examine the same three questions outlined in the proposal. However, the original second research question, which focused on possible differences in time preferences for different types of goods, has evolved so that we now have become more interested in understanding the underlying contextual reasons?including affective and emotional responses as well as judgments of social norms and fairness?for subjects' expressed differences in rates of time preference.We will continue to refine and expand our experiments over the coming 6 months, with the next round of experiments being run in Eugene, Oregon, in early March 2001. These experiments will clarify the relative contributions of gains and losses, and of differences in time preferences, to the observed results and also will include additional scales to further investigate the meaning of these results for conventional practices of benefit-cost analysis.
Journal Articles:
No journal articles submitted with this report: View all 11 publications for this projectSupplemental Keywords:
time preferences, discounting, context, benefit-cost analysis., RFA, Economic, Social, & Behavioral Science Research Program, decision-making, Economics & Decision Making, intertemporal choices, alternative compensation, policy analysis, social psychology, surveys, discounting future gains, time-preference rates, community involvement, decision analysis, economic benefits, public issues, risk management, economic incentives, environmental values, preference formation, socioeconomics, cost/benefit analysis, environmental policy, long-term consequences, endowment effect, psychological attitudes, interviews, public policy, benefits assessment, econometric analysisProgress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.