Discounting and the portfolio of desires.

Abstract

The additive utility theory of discounting is extended to probability and commodity discounting. Because the utility of a good and the disutility of its delay combine additively, increases in the utility of a good offset the disutility of its delay: Increasing the former slows the apparent discount even with the latter, time-disutility, remaining invariant, giving the magnitude effect. Conjoint measurement showed the subjective value of money to be a logarithmic function of its amount, and subjective probability-the probability weighting function-to be Prelec's (1998). This general theory of discounting (GTD) explains why large amounts are probability discounted more quickly, giving the negative magnitude effect. Whatever enhances the value of a delayed asset, such as its ability to satisfy diverse desires, offsets its delay and reduces discounting. Money's liquidity permits optimization of the portfolio of desired goods, providing added value that accounts for its shallow temporal discount gradient. GTD predicts diversification effects for delay but none for probability discounting. Operations such as episodic future thinking that increase the larder of potential expenditures-the portfolio of desirable goods-increase the value of the asset, flattening the discount gradient. States that decrease the larder, such as stress, depression, and overweening focus on a single substance like a drug, constrict the portfolio, decreasing its utility and thereby steepening the gradient. GTD provides a unified account of delay, probability, and cross-commodity discounting. It explains the effects of motivational states, dispositions, and cognitive manipulations on discount gradients. (PsycInfo Database Record (c) 2023 APA, all rights reserved).