Delay and Magnitude Effects in Intertemporal Financial Choices: Expert versus Novice Decision Makers

• In Event: Accounting, Behavior, Organizations and Leadership

Abstract

There is a large body of literature devoted to intertemporal financial choices. Prior studies have found that decision makers often act impulsively by consistently choosing sooner smaller rewards over larger later rewards. The research has also found delay effects (often referred to as hyperbolic discounting) evidenced by steeper discounting of the subjective value of later rewards when the delay to receipt of the later rewards is decreased. In addition, there are many studies that document magnitude effects evidenced by steeper discounting when the size of the sooner smaller and alternate larger later rewards are smaller. However, the research has not examined financial professionals experienced in making intertemporal choices. This study explores differences in the intertemporal choice behavior of novices versus experts. Consistent with prior research, the results indicate that novices (i.e., college freshmen) exhibit impulsive behavior with significant delay and magnitude effects. The discount rates of the experts (i.e., accountants and other professional financial advisors) are significantly smaller than the novices and, contrary to prior research, they do not exhibit significant delay or magnitude effects.

Author

• Kenneth Ryack, Quinnipiac University