Intertemporal Choice
If I offered to give you $20 today or $100 in a year, which would you choose? It’s a pretty straightforward question, and, truth be told, one that has a logical answer. Unless you need that $20 to ensure your near-term survival, why not wait for the bigger prize if it were sure to come. After all, when was the last time that any reputable financial institution offered an investment vehicle guaranteed to quintuple your money in 365 days? Yet, if you pose this question to the average person, you’ll be surprised to find that most will opt to take the $20 and run. Why? To understand that, and the implications it holds for decisions in many domains of life, we first have to put the framework of the decision in context.
This type of decision—one where the consequences of choices change over time—is known as an “intertemporal choice.” It’s a type of dilemma well-studied by economists and psychologists, who often facepalm at the seemingly irrational decisions people make when it comes to investing for the future, but it’s a less familiar one, at least in name, to many outside those fields. The “irrational” part of intertemporal decisions derives from the fact that humans tend to discount the value of future rewards excessively, making it difficult to part with money that could offer pleasure in the moment in order to allow it to grow and, thereby, secure greater satisfaction and prosperity in the future.
Troubling as this situation might be for your 401(k), it’s essential to recognize that the origin of intertemporal choices, and as a result, the domains to which this framework can profitably be applied, aren’t limited to financial ones. In truth, much of human social life—our morality, our relationships—revolves around challenges posed by intertemporal choice. Do I pay back a favor I owe? If not, I’m certainly ahead in the moment, but over time I’ll likely lose any future opportunities for cooperation, not only with the person I left hanging but also with any others who learn of my reputation. Should you cheat on your spouse? Although it might lead to pleasure in the short term, the long-term losses to satisfaction, assuming your marriage was a good one, are likely to be devastating. Should you spend long hours to hone a skill that would make you valuable to your team or group rather than spending a summer’s day enjoying the weather? Here again, it’s the sacrifice of pleasure in the short term than can pave the way for greater success in the long one.
It’s challenges like these—ones involving cooperation, honesty, loyalty, perseverance, and the like—that were the original intertemporal dilemmas our ancestors faced. If they weren’t willing to accept smaller benefits in the short term by being less selfish, they weren’t going to have many friends or partners with whom to cooperate and sustain themselves in the long one. To thrive, they needed to demonstrate good character, and that meant they needed self-control to put off immediate gratification.
Today, when we think about self-control, we think about marshmallows. But what is the marshmallow test really? In point of fact, it’s just a child-friendly version of a dilemma of intertemporal choice: one sweet now, or two later? And as Walter Mischel’s work showed, an ability to have patience–to solve an intertemporal choice by being future-oriented–predicted success in realms ranging from investing, to academics, to health, to social life. In short, being able to delay gratification is a marker of character. People who can will be more loyal, more generous, more diligent, and more fair. In truth, it’s because dilemmas of intertemporal choice underlie social living that they can so easily be applied to economics, not the other way around. After all, self-control didn’t evolve to help us manage economic capital; it came about to help us manage social capital.
Recognition of this fact offers two important benefits. First, it provides a framework with which to unify the study of many types of decisions. For example, the dynamics and, as a consequence, the psychological mechanisms that underlie cheating and compassion will overlap with those that underlie saving and investing. After all, sacrificing time or energy to help another will build long-term capital just as does saving money for retirement. What’s more, this decision framework is a scalable one. For example, the dilemmas posed by climate change, overfishing, and related problems of sustainability are nothing if not intertemporal at base. Solving them requires a collective willingness to forgo immediate profits (or to pay higher prices) in the short term to reap larger, communal gains in the long term.
The second benefit that comes from recognizing the broad reach of intertemporal choice is the expansion of the tool set that can be used to solve its associated dilemmas. While economists and self-control researchers traditionally emphasize using reason, willpower, and the like to overcome our inherent impatience for pleasure, realizing the intertemporal nature posed by many moral dilemmas suggests an alternate route: the moral emotions. Gratitude makes us repay our debts. Compassion makes us willing to help others. Guilt prevents us from acting in selfish ways. These moral emotions—ones intrinsically linked to social living—lead people, directly or indirectly, to value the future. They enhance our character, which when translated to behavior, means they help us to share, to persevere, to be patient, and to be diligent.
So as the new year dawns, remember that most resolutions people will make for the next 365 days and beyond will have an intertemporal aspect. Whether it’s to save more, to eat less, to be kind, or to reduce a carbon footprint, it will likely require some forbearance. And helping people to keep that forbearance going will necessitate all of us—scientists and nonscientists alike—to continue exploring the mind’s inclination for selfish, short-term temptations and its many mechanisms to overcome them in a multidisciplinary manner.
