Abstract
Interest and inflation rates may be major determinants of delay discounting, but these variables have not been controlled in past experiments because they depend on macroeconomic conditions. This study uses a computer game-like task to investigate the effects of inflation rates on people’s subjective valuation of delayed rewards. During the task, participants saved virtual money, received interest, and bought items under inflation and interest rate conditions controlled by the experimenter. The subjective values participants placed on delayed rewards were measured during choice periods, after participants learned of item price changes and expected interest earnings. In 2 of 3 experiments, the effects of inflation rates were investigated when the nominal interest rate (Experiment 1) or the real interest rate (Experiment 3) was constant across the 3 experimental conditions (inflationary, zero-inflationary, and deflationary). The effect of nominal interest rates under the deflationary condition was also investigated (Experiment 2). The results suggest that inflation and interest rates affect participants’ subjective discounting of delayed rewards.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
FREDERICK, S., LOEWENSTEIN, G., & O’DONOGHUE, T. (2003). Time discounting and time preference: A critical review. In G. Loewenstein, D. Read, & R. F. Baumeister (Eds.), Time and decision: Economic and psychological perspectives on intertemporal choice (pp. 13–86). New York: Russell Sage Foundation.
HARRISON, G. W., LAU, M. I., & WILLIAMS, M. B. (2000). Estimating individual discount rates for Denmark: A field experiment. American Economic Review, 92, 1606–1617.
INTERNATIONAL MONETARY FUND. (1998). International Financial Statistics, 51.
JAMES, J., & WEBBER, N. (2000). Interest rate modeling. Chichester, England: John Wiley & Sons.
LOWENSTEIN, G., & PRELEC, D. (1992). Anomalies in intertemporal choice: Evidence and an interpretation. The Quarterly Journal of Economics, 107, 573–597.
MAZUR, J. E. (1987). An adjusting procedure for studying delayed reinforcement. In M. L. Gommons, J. E. Mazur, J. A. Nevin, & H. Rachlin (Eds.), Quantitative analyses of behavior: The effect of delay and of intervening events on reinforcement value (Vol. 5, pp. 55–73). Hillsdale, NJ: Erlbaum.
MYERSON, J., GREEN, L., HANSON, J. S., HOLT, D. D., & ESTLE, S. J. (2003). Discounting delayed and probabilistic rewards: process and traits. Journal of Economic Psychology, 24, 619–635.
MYERSON, J., GREEN, L., & WARUSAWITHARANA, M. (2001). Area under the curve as a measure of discounting. Journal of the Experimental Analysis of Behavior, 76, 235–243.
OSTASZEWSKI, P., GREEN, L., & MYERSON, J. (1998). Effects of inflation on the subjective value of delayed and probabilistic rewards. Psychonomic Bulletin & Review, 5, 324–333.
RACHLIN, H., RAINERI, A., & CROSS, D. (1991). Subjective probability and delay. Journal of the Experimental Analysis of Behavior, 55, 233–244.
RICHARDS, J. B., ZHANG, L., MITCHELL, S. H., & DE WIT, H. (1999). Delay or probability discounting in a model of impulsive behavior: effect of alcohol. Journal of the Experimental Analysis of Behavior, 71, 121–143.
SHAFIR, E., DIAMOND, P., & TVERSKY, A. (1997). Money illusion. The Quarterly Journal of Economics, 112, 341–374.
Author information
Authors and Affiliations
Corresponding author
Additional information
Preparation of the manuscript was supported by a Waseda University Grant for Special Research Projects (2004A-373).
Rights and permissions
About this article
Cite this article
Kawashima, K. The Effects Of Inflation And Interest Rates On Delay Discounting In Human Behavior. Psychol Rec 56, 551–568 (2006). https://doi.org/10.1007/BF03396033
Published:
Issue Date:
DOI: https://doi.org/10.1007/BF03396033