The retrospective evaluation of payment sequences : duration neglects and peak-and-end-effects

Langer, Thomas ; Sarin, Rakesh ; Weber, Martin

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URN: urn:nbn:de:bsz:180-madoc-28201
Document Type: Working paper
Year of publication: 2000
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Subject headings (SWD): Deutschland , Cash Management , Bewertung , Lernen , Entscheidung bei Unsicherheit , Kognition
Keywords (English): retrospective evaluation , duration neglect , temporal preferences , evaluation bias
Abstract: In this paper we present experimental research examining the ability of individuals to make good retrospective evaluations of payment sequences. Inspired by the evidence on systematic biases in the retrospective evaluation of affective episodes involving pain and pleasure we designed choice scenarios for payment sequences in which the existence of peak and end effects as well as duration neglect could be examined. There are two main results: We do not observe a systematic impact of payment sequence features (other than its sum) on the choices if subjects merely get delivered the payments without any affection or effort. Subjects, by and large, choose the sequence with the highest total payment. In a second scenario, in which payments were linked to the subjects? effort and performance in strenuous tasks, we observe a strong effect of duration neglect and a weaker, but still significant end effect. We further find that the mere number of peak losses in a sequence strongly influences its attractiveness. In this scenario subjects do not often choose the sequence with the highest total payment.
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