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When I'm 64: Discounting, Time Preference, and Personal Identity

When I'm 64: Discounting, Time Preference, and Personal Identity

This video was recorded at MIT World Series: Back to the Classroom 2007. Neither philosophers nor economists can satisfactorily explain some quirky aspects of decision-making, such as why most people elect to receive a 30-minute massage in the next two weeks, as opposed to a 45-minute massage a few months down the road. Shane Frederick teases apart preferences like these, coming at them from different perspectives, and raises questions about the degree to which rational thinking drives human choices. Frederick's talk looks at how people weigh the future when making choices. Some studies have shown that "people give less weight to the future – they discount future utility the way bankers discount future streams of income," says Frederick. But other research Frederick cites demonstrates that people like to save the best for last. In ordering a sequence, study participants chose to eat strawberries, then liquorice, and then jelly beans -- holding out for "the better thing later," in this case, the sweetest treat. In another example of people preferring "improving sequences," subjects chose to dine at a quotidian Greek grill first, followed by a fancy French restaurant. But in a "weird preference reversal," people chose to pay more for a "declining sequence," where they would eat first at the expensive French restaurant, and then at the Greek grill. There is incoherence in people's preferences, which has long puzzled thinkers from different disciplines. According to Frederick, economists say there's no arguing with tastes, while philosophers prefer to think that rationality requires some concern for the future. We all have a stake in such debates, points out Frederick. In the real world, individuals make decisions about current behaviors that have future impacts, such as drinking, exercising, and tanning. Societies make decisions about vaccinations and tapping energy resources that impact the climate. Do humans value or discount future life? Frederick notes a study that asked people to choose between Program A, which saves 300 lives in your generation, but no lives in your children's and grandchildren's time; or Program B, which saves 100 lives in your generation, and in each of the succeeding generations. 80% of participants preferred Program B, because it seemed fairer. But Frederick cautioned that whether people clearly place a value on their future selves, or the future of others remains a continuing controversy, with much depending on how researchers frame their studies and questions.

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