Now or Later: An Experimental Analysis of the Effects of Distraction on Individual Financial Decisions and Preferences

Document Type

Thesis

Publication Date

2011

Disciplines

Economics | Social and Behavioral Sciences

Advisor

Parker Wheatley, Economics

Abstract

A number of models in the literature and several experiments show that a high cognitive load will lead to individual decision makers selecting emotionally appealing options over less appealing but, in the long run more advantageous, alternatives. There has been little work examining the effects of cognitive load on intertemporal financial decisions. Researchers used data from an experiment run with 45 college students to test whether filling out a survey under conditions of distraction would elicit higher discounting rates than completing it with no distractions. Additionally, a choice of a small immediate or larger delayed reward was offered at the end of the survey. Researchers found evidence suggesting that ability to defer consumption options that are immediately available is impaired when participants are distracted, but when making decisions about consumption options which are unavailable until a later time, the distraction condition had little effect.

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