Chapter 4. Vividness in intertemporal choices between hedonic and utilitarian goods

Transcription

1 Chapter 4 Vividness in intertemporal choices between hedonic and utilitarian goods Summary In this chapter we investigate the influence of vividness on the desire to receive hedonic and utilitarian goods immediately. In analogy to chapter three also the influence of vividness on monetary compensation charges for delaying hedonic and utilitarian goods is investigated. Several researchers have suggested an influence of vividness on intertemporal preference, but there is disagreement about whether vividness raises or lowers impatience and how vividness affects the desired receipt of hedonic or utilitarian goods. In a series of experiments, we demonstrate no effect of vividness on monetary discount rates, but vividness strongly raises the attractiveness of hedonic goods when people choose whether to receive hedonic or utilitarian goods sooner. These results are in accordance with framing theory.

2 68 Chapter Introduction In the previous chapter we demonstrated greater impatience for hedonic goods than for utilitarian goods when subjects choose which of these goods to receive sooner. When subjects have to determine monetary compensation charges for delaying hedonic or utilitarian goods these differences in immediate preferences were much less pronounced. We now investigate intertemporal choices between hedonic and utilitarian goods in more detail, viz., how vividness affects impatience to receive either kind of good. An impact of vividness on intertemporal choices has been suggested by several authors (e.g., Mischel, Shoda & Rodriguez 1992; Becker & Mulligan 1997; Loewenstein 1996), but these suggestions are contradictory. Becker and Mulligan (1997) argue that vividness lowers impatience due to a perceived reduction in temporal distance, Loewenstein (1996) argues that vividness raises impatience when visceral factors, e.g., hunger, are involved, while Mischel et al. (1992) conclude that different kinds of vivid presentation, e.g., presence of the reward or photography of the reward, may either decrease or increase impatience, depending on whether the presentation of the reward focuses on its abstract or arousing qualities. We argue that vividness affects hedonic and utilitarian goods differently, since a vivid presentation raises the ease with which hedonic or utilitarian use of a good can be imagined. Because hedonic and utilitarian goods elicit different levels of deprivation, and consequently different levels of myopia, vividness is expected to raise impatience for hedonic goods more strongly than for utilitarian goods. As in the previous chapter, vividness should affect preference for hedonic over utilitarian goods stronger in choices about which good to receive sooner than when stating monetary compensation charges for delaying either good. In the following, we summarize the competing considerations about the influence of vividness on intertemporal preferences in more detail and then present some experiments testing their correctness Theory In the psychological literature there has been extensive research on the effect of vivid information on behavior, yet the empirical evidence concerning this effect is, at best, mixed. Nisbett and Ross (1980: 45) define information as vivid to the extent that it is a) emotionally interesting, b) concrete and image-provoking, and c) proximate in a temporal, spatial or sensory way. Additionally, they state that emotional interest rises with social closeness and the hedonic relevance of events in a scenario to its participants. Nisbett and Ross (1980), mostly considering anecdotal evidence, take for granted that people s inferences on behavior are so much more influenced by vivid, concrete information than by pallid and abstract propositions of substantially greater probative and evidential value (1980: 44). Consequently, they immediately turn to the question what causes this effect, arguing that vivid information is more likely to be stored in memory and remembered than non-vivid information. Vivid information therefore is more accessible (Tversky & Kahneman 1973) than non-vivid information. In this view vividness potentially affects impatience for hedonic and utilitarian goods in several ways, making predictions concerning its overall effect difficult. First, this reasoning suggests a value effect. That is, vivid goods are valued higher, raising impatience for them, since people immediately prefer larger rewards to smaller rewards. Further, this value effect should be stronger for hedonic than for utilitarian goods, since hedonic goods are inherently more vivid and emotionally interesting than utilitarian

3 Vividness in intertemporal choices between hedonic and utilitarian goods 69 ones. 53 Second, a vivid presentation may make delayed goods appear to be temporally closer than they actually are, i.e., it shrinks the perceived temporal distance. A vivid presentation thus, should lead to less discounting. Similarly, economists Becker (1996) and Becker and Mulligan (1997) argue that discount rates are influenced by the degree to which people can imagine the future vividly. People with a high stock of visualization capital can imagine the future better and therefore value it higher and discount less. Here again, vividness shrinks the perceived temporal distance of delayed rewards and therefore makes people more patient. Fiske and Taylor (1984) review the effect of vivid stimuli on behavior in general, but summarize: there is little empirical evidence for vividness effects... in sum, vividness does not work well empirically, although intuitively it seems as if it should (1984: 391). This has been corroborated by recent research: Jenni and Loewenstein (1997) found no vividness effect when investigating why people are much more willing to save identifiable instead of statistical victims. It seems that vividness, if at all, only works under very special conditions (McGill & Anand 1989, Anand & Keller 1998), e.g., when subjects are explicitly told to imagine goods vividly and follow their emotions when making choices. From research on vividness in general, we thus would expect no effect of vividness for intertemporal choices. Previous experimental research on delay of gratification however suggests that vividness is at least sometimes important in intertemporal choice. Drawing on research on pre-schooler s ability to delay gratification, Mischel and his colleagues distinguished arousing and abstract presentation of rewards. In an arousing presentation the motivating qualities of the stimulus were stressed and the completion of the action sequence was suggested, e.g., eating food. In an abstract presentation the focus was more on the informative, symbolic aspects of the stimulus. This distinction seems to match the distinction between hedonic and utilitarian goods. Hedonic goods provide direct utility derived from the completion of action sequences and therefore are potentially arousing, while the utilitarian goods serve as means to derive utility from consumption and are more abstract. Mischel et al. (1992) report several experiments about pre-schoolers ability to delay gratification. The children were presented with several rewards differing in value, e.g., toys or snacks. The experimenter then left the room and asked the children to wait an unspecified amount of time (typically about 15 minutes) for the experimenter to return. When the children were able to wait until the experimenter returned, they were promised to obtain the larger of the two rewards, e.g., five pretzels instead of two small cookies. Children who were unwilling to wait could call the experimenter at any time by ringing a bell to receive the smaller reward, the two cookies, immediately. Contrary to the investigators expectation, presence of either the immediately available smaller or the delayed larger reward decreased waiting time, i.e., the average time children waited before ringing the bell. Vividness, i.e., presence of either reward, thus increases impatience. Inclining subjects to think about the rewards yielded the same result, whereas providing distracting ( fun ) thoughts, unrelated to the objects, raised 53 'Raising impatience' here is a somewhat tricky term. One may argue that due to the magnitude effect presented in Chapter 1 higher valued goods are discounted less strongly, and hence people are more patient. Suppose a person has to choose between two goods presented non-vividly and is indifferent which good to receive sooner. A vivid presentation of one good now potentially raises its value and results in a preference for the good presented vividly to be received sooner. The person therefore is more eager to receive this good, though his discount rates may decline. In the experiments below both discount rates and preference for immediate receipt are investigated to separate these effects.

4 70 Chapter 4 waiting time. Distracting thoughts were also able to cancel out the effect of exposure to either reward: children waiting in the presence of the reward and being provided with distracting thoughts waited roughly as long as children waiting in the absence of rewards and distracting thoughts. Vividness therefore raises impatience. However, providing children with photos of the reward increased their waiting time, implying that vividness can also lower impatience. Mischel et al. (1992: 154) concluded: Thus different modes of presenting rewards may either hinder or enhance self-control. Unfortunately, this approach then shifts the problem to what makes a presentation arousing or abstract. However, generally we would expect less patience and more discounting for arousing hedonic goods and more patience and less discounting for abstract utilitarian goods when presented vividly. In addition, Loewenstein (1996), when discussing why myopic behavior occurs frequently when visceral factors are involved, argues: Immediate emotions arising from future events are inevitably linked to some mental image or representation of those events... the more vivid such images are, and the greater detail with which they are recalled, the greater the emotional response (Loewenstein 1996: 280). This emotional response directly affects the decision maker s level of deprivation due to non-possession of an object (see Chapter 3 for further discussion): higher emotional responses lead to stronger deprivation. Loewenstein (1996) interprets the Mischel et al. results such that presence of rewards creates deprivation, which children wanted to overcome by consuming the earlier but smaller reward. This view is consistent with the reasoning in chapter three as well as Hoch and Loewenstein (1991). However, since Loewenstein (1996) restricts his analysis to situations where visceral factors are involved, his analysis does not easily transfer to hedonic and utilitarian goods. While hedonic goods appear to be clearly more visceral than utilitarian goods and we thus would expect vividness to raise impatience for them more strongly, it is doubtful whether hedonic goods are able to evoke the strong physical reactions, e.g., deprivation of drugs involves for addicts. Hence, the arguments concerning visceral factors cannot be applied to hedonic goods without additional assumptions and from a visceral factors perspective we therefore expect no effect of vividness on intertemporal preference between hedonic and utilitarian goods. The reasoning put forth in chapter three suggests an effect of vividness on intertemporal preferences. In chapter three we modeled deprivation for hedonic and utilitarian goods as follows: D h = a(p - r) + b h (r-0) > D u = a(p - r) + b u (r-0), (1) a being the slope of the consumer's value function in the positive region, b its slope in the negative region, and r is the level of adaptation between purchase (P) and non-purchase (0). For example, consumers being able to imagine the possession of a good very well, adapt more strongly to its possession and are more likely to buy the product. Desire D represents the consumer s motivation to purchase a product. This motivation depends on the consumer's deprivation due to current non-possession of a product. Consequently, impatience rises with deprivation and especially is stronger for hedonic than for utilitarian goods. A vivid presentation now affects impatience in two ways. First, making a good appear more hedonic or more utilitarian due to a vivid presentation affects loss aversion for this good as measured by b in formula (1) above. Since loss aversion

5 Vividness in intertemporal choices between hedonic and utilitarian goods 71 and deprivation due to non-possession are stronger for hedonic than utilitarian goods, deprivation and consequently impatience is raised more strongly when a vivid presentation makes a good appear more hedonic than when making a good appear more utilitarian. Second, because hedonic usage is easier to imagine, it is easier to adapt to the possession of hedonic instead of utilitarian goods when goods are presented vividly. This second effect of vividness thus pertains to the parameter a in formula 1. Extending equation 1 by assuming easier adaptation to the possession of hedonic goods and by assuming that vividness makes goods appear more hedonic or utilitarian respectively has two consequences. First, it raises deprivation for both goods as in equations 2 and 3: D hv = a v (P - r) + b hv (r-0) > D h = a(p - r) + b h (r-0), for 1 a v > a 0, and b hv > b h (2) D uv = a v (P - r) + b uv (r-0) > D u = a(p - r) + b u (r-0), for 1 a v > a 0, and b uv > b u (3) Second, it raises the inequality in equation 1 above. That is, a vivid presentation raises deprivation for hedonic goods more strongly than for utilitarian goods: Dhv = av(p - r) + bhv(r - 0) Dh = a(p - r) + bh(r - 0) > Duv = av(p - r) + buv(r - 0) Duv = a(p - r) + bu(r - 0) for 0 < a u < a h 1, and b hv > b uv. (4) Consequently, vividness raises impatience for both goods but more strongly for hedonic than for utilitarian goods (hypothesis 1). This reasoning is based on subject's experienced level of deprivation. In order to distinguish this pure deprivation effect' from a framing effect (in the sense of framing theory), we will again use frame-sensitive measurement as in Chapter 3. Framing theory, as presented in Chapter 1, again predicts the effect of vividness to differ with the measurement of impatience. As in Chapter 3, we expect a stronger preference for hedonic goods to be received sooner under measures that do not stress utilitarian aspects and a stronger preference for utilitarian goods to be received sooner under measures that underline the utilitarian features. Again, monetary amounts should underline the utilitarian features of an option, because people might consider alternative utilization of the money when thinking about the correct trade-off between waiting time and compensation. Further, asking for compensation charges may provoke considerations such as 'appropriateness' of the charge or considerations about the monetary costs of delaying an object. Therefore, utilitarian goods should be more attractive when monetary compensation charges are involved, while hedonic goods are more popular when subjects simply state which of two goods they would like to receive sooner (hypothesis 2). Note, that this reasoning extends the 'pure deprivation effect', because the effects predicted in formulae 2-4 hold irrespective of the elicitation method. In the following paragraph we will have a closer look on the predictions of the other above-mentioned approaches on such a measurement effect. Applying Nisbett and Ross' considerations to intertemporal choices does not result in specific predictions how measurement affects impatience. Recall that their arguments concerning vividness pertained to a rise in value as well as to a shrinkage in perceived temporal delay. In may well be that different elicitation methods affect the valuation and perceived time delay for hedonic and utilitarian goods differently but to derive

6 72 Chapter 4 predictions, additional assumptions seem necessary. Fiske and Taylor expect no effect of vividness anyway and hence also no measurement effects, while for Becker and Mulligan, staying within the framework of neoclassical economics, different elicitation methods should yield identical results. Loewenstein's visceral factors perspective likewise suggests no effect of different elicitation methods. Since visceral factors exert physical influence on behavior, it is unclear why this effect should be dependent on the way impatience is measured. The only approach compatible with an effect of vividness depending on measurement is Mischel's arousing/abstract distinction. According to this view, impatience depends on whether abstract or arousing features of the reward are stressed. Asking subjects which of two goods they prefer to receive sooner then possibly focuses on the arousing features of the goods while asking for monetary compensation charges possibly focuses more on the abstract qualities of the good. Hence, Mischel's arousing/abstract distinction predicts similar measurement effects as framing theory. However, Mischel's position differs from the deprivation and framing arguments above, since it suggests greater impatience for hedonic goods when presented vividly and less impatience for utilitarian goods when presented vividly. This asymmetric effect of vividness on goods is due to the fact that for utilitarian goods when presented vividly the focus is likely to lie on the abstract qualities of the reward, thus making it even more abstract. Further, recall that presenting children with photos of the rewards lowered impatience. Since, the rewards were toys or snacks, they can safely considered to be hedonic. Likewise, photos can be considered more vivid than a pale description of the reward and should therefore, according to formulas 2-4 above, raise impatience. Table 4.1 summarizes the different approaches and their predictions with respect to the effects of vividness and measurement on discounting. Table 4.1 Different approaches and predictions on the effect of vividness on discounting Model Effect of vividness on impatience Measurement effect Nisbett & Ross Fiske & Taylor Becker & Mulligan Mischel Loewenstein Deprivation/ Adaptation effect Framing theory Raises value and shrinks perceived time delay. Overall effect: unclear No effect of vividness Shrinks time delay, lowers discounting Depending on whether abstract or arousing properties are stressed: raises impatience for hedonic goods, lowers impatience for utilitarian goods. Effective when visceral factors are involved, no statement for hedonic or utilitarian goods Vividness raises impatience, but more strongly for hedonic goods Raises discounting for both goods, induced effects are confounded with measurement: greater impatience for hedonic goods in choices, greater impatience for utilitarian goods in financial compensation No prediction No No Yes, depending on abstract or arousing presentation No No Yes In the following, three experiments will be presented. Experiment 1, asking subjects whether they wold like to receive hedonic or utilitarian goods sooner, first investigates whether vividness affects impatience at all, second, it investigates whether vividness affects hedonic and utilitarian goods differently, and third, whether such a

7 Vividness in intertemporal choices between hedonic and utilitarian goods 73 potential effect of vividness is due to a rise in the valuation of goods. In experiments 2 and 3, it is additionally investigated whether vividness affects impatience identically irrespective of the way impatience is measured. The question explored is, whether the potential effect of vividness also holds when subjects have to determine adequate financial compensation for delaying hedonic and utilitarian goods. Experiment 2 offers a fixed financial compensation for delaying goods, whereas in experiment 3 subjects are asked to specify exact monetary compensation charges for the delay of hedonic and utilitarian goods Experiments and results Experiment 1 Subjects Subjects were 89 students at the university of Groningen from various disciplines recruited via and by flyers. Mean age was 22 years, 44% were males and 56% females, average monthly income was ƒ1057 ($500), and the main fields of study were psychology (21%), management science (20%), natural science (11%), sociology (10%), educational science (11%), and economics/econometrics (6%). One subject had to be removed from all analyses, because he did not understand several of the decision tasks. Method Subjects gathered in groups ranging from 2 to 23 persons to participate in the experiment. They were provided with a booklet containing the experimental tasks, i.e., choice problems, and a questionnaire concerning the personal background of subjects described in detail in Chapter 5. A version of the complete booklet is presented in Appendix A at the end of this book. The experimental tasks consisted of experiments 1 and 3 below, several other experiments on intertemporal choices partly described in Chapters 2 and 3, and several unrelated decision scenarios. Subjects were told about the context in which the research took place and that there were no wrong or right answers. The experimenter was present during the whole session to answer questions concerning the choice tasks, the questionnaire items, or the questionnaire. Filling in the booklet took between 40 and 75 minutes, most people needed between 50 and 60 minutes. Subjects were paid ƒ10 (approximately $4.50) and had an additional opportunity to win a gift certificate worth between ƒ15 and ƒ25 depending on their choices in another experiment (experiment 5 in Chapter 3). Experiment 1: design The previous chapter demonstrated a greater preference to receive hedonic goods sooner than utilitarian goods when subjects have to choose which of the two goods to receive sooner. To investigate whether and how vividness influences intertemporal preference for hedonic and utilitarian goods subjects were told that they had won a hedonic and a utilitarian good in a lottery. Subsequently, they were asked to chose which good they prefer to receive sooner. The goods were described either both vividly or both nonvividly. A television set was considered a hedonic good, a washing machine was chosen

8 74 Chapter 4 as a utilitarian good. 54 Washing machines and television sets were chosen because of subjects familiarity with them and because both goods provide constant streams of utility. In fact 80% of the subjects in a control question indicated that they owned a washing machine and 92% owned a television. Both goods were offered simultaneously. In the non-vivid condition subjects were only told that they had won an expensive television (list price ƒ2400) and an expensive washing machine (ƒ2400). In the vivid condition subjects were told that they had won 'a flat-screen television with Dolby stereo to create cinema atmosphere (official price ƒ2400) and 'a high quality long-durable Miele washing machine with low energy use and five-year guarantee (official price ƒ2400). Note, that for the hedonic good the hedonic attributes are made more vivid, while for the utilitarian good utilitarian features are made more vivid. Prices for both goods given in the text were 'real prices' of comparable goods available in stores. In addition, selling prices for both goods were elicited. Eliciting selling prices is necessary to control for possible differences in value between the vivid/non-vivid conditions as well as between the hedonic/utilitarian conditions. For example, subjects may value a television set presented vividly higher than a television set presented nonvividly as suggested by Nisbett and Ross (1981). This in turn may affect preferences for which good to receive sooner. To suppress such possible differences in valuation between the vivid and non-vivid condition, in the non-vivid condition the information that the good is expensive was given. An expensive good suggests superior quality and thus it has to have some special features. To control for the fact that waiting for a washing machine and waiting for a television set may create different costs - not being able to watch television is one thing, to dwell in a flat covered with smelly laundry another - current alternatives to the possession of these goods were specified ( you used a laundry to wash your clothes, and you watched TV at your friends place ) associated with roughly equivalent costs. To further control for possibly different costs, at the end of the experimental part in the booklet subjects stated selling prices and monetary compensation charges for both goods and motivated their responses. In this control question goods were presented either vividly or non-vividly according to this experiment. That is, subjects who were confronted with a vivid scenario in experiment 1 also stated selling prices and compensation charges for vivid television sets and washing machines. If, due to laundry costs, subjects perceive the costs of delay to be higher for washing machines than for televisions, this should be reflected in their arguments. Note, that such potentially different costs for delay between washing machines and television sets do not affect the effect of vividness on preference for immediate receipt. If delaying washing machines creates higher costs for subjects than delaying television sets their preference for immediate receipt of the utilitarian good is raised in both the vivid and non-vivid condition. Time delay was varied in this experiment as well. In one condition ('immediate condition') both goods were available either now' or 'after four weeks. In the other condition ('remote condition') receipt of both goods was shifted in four weeks in the past. Hence, the respective time delays were four weeks' and 'eight weeks. Time delay was additionally varied, because the effect of vividness might be restricted to options that are available immediately. For example, Mischel s arousing/abstract distinction and 54 The experiment was carried out in the absence of major sporting events that may cause temporary rises in the utility derived from immediately getting a television.

9 Vividness in intertemporal choices between hedonic and utilitarian goods 75 Loewenstein s visceral factors perspective both seem to suggest that vividness raises impatience for the receipt of goods more strongly, if the goods are available immediately. After completion of the experiment the whole sample (n = 88) classified the goods used as either type A: hedonic, type B: utilitarian, type C: both or type D: neither. 55 Subjects were confronted with the following text (in Dutch, vivid condition): Imagine: you have participated in a lottery. You could not only win monetary prizes but also consumer goods. You were so fortunate to win a television set and a washing machine. It is a flat-screen television set with Dolby stereo to create cinema atmosphere (official price of ƒ2400) and a high-quality long-durable Miele washing machine with low energy use and five-year guarantee (with an official price of ƒ2400, too). You did not have a television set or a washing machine at home. You watched television at friends or parents and did your washing at a laundry. What is the minimal amount for which you would like to sell this television set:? What is the minimal amount for which you would like to sell this washing machine:? Unfortunately, there is a temporary shortage in prizes, hence, not every winner can obtain his or her prize immediately. The organization of the lottery therefore asks you to wait for your prize. The organization is completely trustworthy. You have two possibilities (circle which you prefer): A: You get the television set immediately and the washing machine in four weeks. B: You get the washing machine immediately and the television set in four weeks. Order of presentation for choices A and B was varied as well. That is, for part of the subjects getting the washing machine immediately was presented as option A. Note, that with this design it is only possible to distinguish whether vividness affects impatience for hedonic and utilitarian goods differently. When both goods are presented vividly either the hedonic good becomes more preferred, the utilitarian good becomes more preferred, or the relative desirability of both goods remains the same. It is not possible with this design to test whether impatience for both goods increases or decreases. This question will be addressed in experiments 2 and 3. Experiment 1: results Manipulation check The hedonic/utilitarian classification in fact worked as intended. For the whole subject pool washing machines were classified as 'primarily utilitarian' by 95.5% and as 55 The exact wording was: Some people distinguish between goods. Some goods are pleasant and fun, give pleasure and appeal to your senses, e.g., perfume (type A). Some goods are useful, practical, functional, something that helps you to achieve a goal, e.g., a vacuum cleaner (type B). Could you indicate for each of the following goods whether they are type A, type B, both, or none. Circle.

10 76 Chapter 4 'both hedonic and utilitarian' by 4.5% (χ 2 : 39.4; p <.001). Television sets were classified as 'primarily hedonic' by 75%, as 'both hedonic and utilitarian' by 20.5%, as 'primarily utilitarian' by 2.3% and as 'none' by 2.3% (χ 2 : 27.41; p <.001). There was no effect of vividness on classification. Thirty-nine subjects answered questions for the vivid goods, 49 for the non-vivid goods. As to different costs associated with the delay of the goods, there is some evidence that subjects in fact perceive the costs for delaying receipt of a washing machine to be higher than costs for delaying the receipt of a television set. In the control question at the end of the experimental booklet 42% of the subjects mentioned rental costs when motivating their financial compensation charge for delaying a washing machine, while only 1 subject mentioned rental costs in case of the television set. Selling prices Selling prices for the whole sample were approximately equal for hedonic and utilitarian goods (ƒ2010 vs. ƒ2032; t: 47; n.s.). Vividness did neither significantly affect selling prices for television sets (vivid condition: ƒ2072, non-vivid condition: ƒ1961; t:.88; n.s.) nor for washing machines (vivid condition: ƒ2072, non-vivid condition: ƒ2001; t:.55; n.s.). Thus, contrary to the suggestion of Nisbett and Ross, there is clearly no value effect present: if vividness affects intertemporal preferences, this is not due to differences in the valuation of goods. Comparing individual differences in the valuation of the two goods reveals a similar picture. In the non-vivid condition 26.5% of the subjects valued the television set more than the washing machine, 38.8% valued both goods equally, and 34.7% valued the washing machine more than the television. In the vivid condition the percentage of subjects who value the television set more than the washing machine remains stable (26.5%) and the percentage valuing both goods equally increases somewhat (44.1%). Consequently, slightly fewer subjects than in the non-vivid condition value the washing machine more than the television set (29.4%). None of these differences was significant. Impatience Preference to receiving hedonic or utilitarian goods sooner is affected strongly by vividness. In the non-vivid scenario where goods could be received either immediately or after a four weeks delay (non-vivid immediate condition) only 9% prefer to receive the television set sooner and 91% prefer to receive the washing machine sooner. In this immediate condition, preference for the hedonic good rises strongly when both goods are presented vividly: 56% now prefer to receive the television set immediately and to delay receipt of the washing machine. In the remote condition the picture is similar. In the nonvivid remote condition a majority of 60% prefers to receive the washing machine sooner and only 40% prefer to receive the television set sooner. Again, vividness strongly raises preference for the hedonic good. A vast majority (66%) prefers to receive the television set sooner when both goods are available after 4 or 8 weeks and only 34% prefer to receive the washing machine sooner. Table 4.2 summarizes differences in the valuation between goods (first 3 rows) and preference to receive the utilitarian good, i.e., the washing machine, sooner (rows 4 and 5). Values between brackets denote preference to receive the hedonic good, i.e., the television set, in the respective condition sooner.

11 Vividness in intertemporal choices between hedonic and utilitarian goods 77 Table 4.2 Selling prices for both goods and preference to receive the utilitarian good sooner (between brackets preference to receive the hedonic good sooner) TV > WM Equal TV < WM Now vs. 4 weeks N 4 weeks vs. 8 weeks Vivid 26.5% 44.1% 29.4% 44% (56%) 34% (66%) 39 Non-vivid 26.5% 38.8% 34.7% 91% (9%) 60% (40%) 49 We carried out a logistic regression analysis with choice for getting the utilitarian good sooner as the dependent variable. Independent variables were 'differences in selling prices' (selling price for the TV set selling price for the washing machine); 'time delay' (dummy: now vs. 4 weeks and 4 weeks vs. 8 weeks ); and 'vividness' (dummy: yes or no). This model predicts preferences between hedonic and utilitarian goods very well (χ 2 : 13.47; p <.001, Nagelkerke Pseudo R 2 :.48). As predicted there are strong effects of 'differences in selling price' and 'vividness'. Valuing the television higher than the washing machine strongly lowers the likelihood of preferring the washing machine sooner (Wald: 11.95; p <.001). A vivid presentation of both goods likewise strongly lowers preference for getting the washing machine sooner (Wald: 10.77; p =.001). 56 That is, in choices which good to receive sooner vividness relatively raises impatience for hedonic goods. Though longer time delay lowers the probability of preferring the washing machine sooner, this effect is not significant (Wald:.92; n.s.). Table 4.3 summarizes results. Table 4.3 Factors affecting preference for receiving the washing machine sooner B S.E. Wald Sig. Model: Chi-square Pseudo R 2.48 Coefficients: Difference in selling prices (TV-set - Washing machine) Time delay Vividness Constant N = 88 Discussion: The results above clearly reveal a stronger effect of vividness for hedonic than for utilitarian goods. This effect is not due to changes in the valuation of both goods and is not dependent on the time delay after which goods can be obtained. This strong effect of vividness is especially striking, given that the vividness manipulation for both goods consisted of only one sentence and was not very strong. In addition, there is as strong tendency to prefer to receive the higher valued good sooner. This tendency is in 56 The coefficient for vividness is positive, because the coding was (1 = Yes; 2 = No). A higher value for vividness thus raises the likelihood of preferring the washing machine sooner.

12 78 Chapter 4 accordance with the results in Chapter 3 as well as the DU-model and is taken as a validation of the experimental design and the goods chosen. However, the large preference to receive the utilitarian good in the non-vivid condition sooner is surprising. While only 35% valued the washing machine higher than the television set, 91% preferred the washing machine sooner in the non-vivid immediate condition, i.e., in a setting that resembles the experiments in the previous chapter. It was already mentioned that delaying these two goods might involve different costs. Since a laundry involves monetary and temporal costs, subjects might be more aversive to use it for washing than to visit friends for watching television. In the non-vivid condition this effect may overweigh the stronger deprivation for hedonic over utilitarian goods, while vividness raised deprivation for the television set so strongly that the difference in costs is overweighed. There is indeed some evidence for this reasoning. First, in the control question at the end of the booklet 42% of the subjects mentioned rental costs when motivating their financial compensation charges for the washing machine, while only 1 subject mentioned rental costs in case of the television set. Hence, subjects do seem aware of different costs for delaying these two goods. Regressing selling prices for washing machines reveals that subjects who mention rental costs charge marginally higher selling prices (Beta:.21; t: 1.85; p =.07), indicating that the awareness of different costs affects variables relevant for delay. 57 Further, subjects indicating that rental costs play a role on average value the washing machine higher than the television (difference in selling prices: ƒ203), while subjects who base their compensation charges on other grounds value the television higher (difference in selling prices: ƒ86). This difference is significant at p <.01 (t: 3.08), indicating that rental costs affect influential variables. Finally, it is possible that there is a bias towards equating selling prices for both goods. Recall, that both goods were presented simultaneously with identical official prices given. Subjects might argue that since goods are presented next to each other with equal official prices identical selling prices should be charged. This might compress existing differences in valuation, which are reflected in a greater preference to receive the higher valued good immediately. The following two experiments will investigate this final explanation more closely by using again washing machines as a utilitarian and television sets as a hedonic good. Because in these experiments the goods are presented to subjects simultaneously, we can check whether or not a bias towards equating the selling prices in experiment 1 is a reasonable interpretation of the results. Experiment 2 Experiment 1 demonstrates that vividness raises the attractiveness of hedonic goods more than of utilitarian goods. However, it did not allow us to judge whether vividness absolutely raises or lowers impatience. It may be possible that vividness lowers impatience for both goods, but more so for utilitarian goods and that vividness raises impatience for both goods but more so for hedonic goods. Further, from chapter three we 57 In a logistic regression analysis 'reason for delay charge' (dummy: mentioning rental costs yes or no) affects preference to receive the washing machine sooner, when vividness is included as the only other covariate in the model (χ 2 = 20.91; p <.001; both variables significant at p <.05). Additionally including difference in selling price leads to insignificance of mentioning rental costs (Wald: 1.72; p =.19) but improves the model (χ 2 = 31.27, p <.0001). Contrary to the model presented in table 4.3., vividness now has a stronger influence than differences in selling price (Wald: vs. 6.79).

13 Vividness in intertemporal choices between hedonic and utilitarian goods 79 know that preferences in direct choices may not correspond to choice situations where subjects have to determine adequate financial compensation. To find out whether vividness raises or lowers impatience for both goods and whether vividness raises the immediate attractiveness of hedonic goods more strongly than for utilitarian goods also when subjects have to translate their impatience into adequate financial compensation charges another experiment was carried out. Subjects Subjects were 80 students at the university of Groningen from various disciplines recruited via and by flyers. Mean age was 22 years, 42% were males and 58% females, average monthly income was ƒ1100 ($500), and the main fields of study were psychology (30%), management science (11%), languages (8.5%), sociology (8.5%), law (7%), economics/econometrics (8.5%) and natural sciences (7%). Method Subjects gathered in groups ranging from 6 to 15. They were assigned to a computer where the program concerning the experiments described in chapter 7 had been installed and instructed about the context in which the research took place. They were told about the context in which this research took place and that there were no wrong or right answers. They were confronted with choice problems presented on a computer screen and with choice problems and questions concerning their personal background presented on paper. 58 Choice problems on paper as well as the questions on paper were announced and presented to subjects as regular breaks in answering the choice problems at the computer screen. The experimenter was present during the whole experiment in order to answer questions concerning the tasks. Completing the whole experiment took between 50 and 110 minutes, most people needed between 80 and 90 minutes. Subjects were paid ƒ25 for their participation. Experiment 2: design We again used the lottery scenario and offered subjects television sets (hedonic goods) and washing machines (utilitarian goods). Subjects then stated selling prices for the respective goods, thus again investigating whether potential effects of vividness on intertemporal preference are due to a change in the valuation of goods. Contrary to experiment 1, this time subjects were not offered both goods simultaneously, but subsequently. That is, subjects were told that they had won one good in a lottery that has to be delayed. Subjects then could either receive the good immediately or wait 4 weeks and receive a fixed financial compensation (ƒ100). Then the same text with the same choice tasks was presented to the subjects but with another good. Vividness was manipulated as in experiment 1. That is, in the non-vivid condition subjects were only told that they had won an expensive television (official price: ƒ2400) or an expensive washing machine (official price: ƒ2400). In the vivid condition subjects were told that they had won 'a flat-screen television with Dolby stereo to create cinema atmosphere 58 The choice problems on the computer screen are presented in chapter 7, the questions concerning the personal background of subjects are presented in chapter 5, and the other choice problems presented on paper are partly described in this chapter and partly consisted of other intertemporal problems not used for this dissertation.

14 80 Chapter 4 (official price: ƒ2400) and 'a high quality long-durable Miele washing machine with low energy use and five-year guarantee (official price: ƒ2400). Hence, this experiment tests not only whether there is a greater immediate attractiveness for hedonic than for utilitarian goods under a different measure for impatience, but also whether vividness absolutely raises the immediate attractiveness for both hedonic and utilitarian goods. Because in this experiment subjects made their choices for both goods subsequently, we additionally investigate whether the equation of selling prices observed in experiment 1 results from equal valuation or whether this result should be interpreted as a bias towards equal selling prices elicited by the equal monetary prices given in the experiment. Subjects were confronted with the following text (in Dutch, vivid condition, television set): Imagine: you have participated in a lottery. You could not only win monetary prizes but also consumer goods. You were so fortunate to win a television set. It is a flat-screen television with Dolby stereo to create cinema atmosphere with an official price of f2400. You did not have a television at home. You watched television at friends. What is the minimal amount for which you would like to sell this television:? Unfortunately, there is a temporary shortage in prizes, hence, not every winner can obtain his or her prize immediately. The organization of the lottery therefore asks you to wait for your prize. You have two possibilities (circle which you prefer): A: You get the television set immediately. B: You get the television set in four weeks plus ƒ100 as compensation for waiting. Subsequently subjects answered the same question for a high quality Miele washing machine with low energy use and five-year guarantee (official price ƒ2400). Order of presentation was varied, part of the sample first answered questions for the hedonic good and part of the sample received questions for the utilitarian good first. In addition, also order of presentation for options A and B was varied. That is, part of the sample received a text where 'You get the television immediately' was presented as option B. Subjects either had to make choices for two vivid or two non-vivid goods. After completion of the experiments part of the sample (n = 39) was asked to classify the goods as either type A: hedonic, type B: utilitarian, type C: both or type D: neither. 59 Experiment 2: results Manipulation check The television set was rated as being primarily hedonic by 59%, as both by 38.5% and as primarily utilitarian by 2.5% (t: 6.38; p <.001), Washing machines were rated as primarily utilitarian by 97.5% and as primarily hedonic by 2.5% (t: 18.5; p < 59 The exact wording was: Some people distinguish between goods. Some goods are pleasant and fun, give pleasure and appeal to your senses, e.g., perfume (type A). Some goods are useful, practical, functional, something that helps you to achieve a goal, e.g., a vacuum cleaner (type B). Could you indicate for each of the following goods whether they are type A, type B, both, or none. Circle.

15 Vividness in intertemporal choices between hedonic and utilitarian goods ). Though the television is rated slightly less often as hedonic than in experiment 1, the manipulation hedonic versus utilitarian appears to have worked again. As in experiment 1, vividness does not affect ratings. Selling prices Mean selling prices for washing machines (ƒ2234) are higher than for televisions (ƒ1869; t: 5.45; p <.001), indicating higher valuation of the utilitarian good in this experiment. This does not affect the appropriateness of the experimental design, because subjects do not have to make direct comparisons between the two goods but compare them against financial compensation. However, this might provide some explanation why in experiment 1 in the non-vivid immediate condition 91% of the subjects preferred to receive the washing machine sooner. Subjects in this experiment in fact might have valued the washing machine higher than the television set, but felt they should be compensated for both goods equally, since official selling prices for both goods are equal as well. Again, in experiment 2 vividness has no effect on selling prices for television sets (t:.09; n.s.) or washing machines (t:.52; n.s.), thus again, ruling out a potential value effect of vividness on intertemporal preferences. Impatience There is a greater overall tendency to prefer the utilitarian good immediately and to reject the offered financial compensation - than the hedonic good. For the television set only 14% chose to receive it immediately while 84% were willing to wait four weeks and receive additional financial compensation (n = 79). For the washing machine (n = 53) 40% wanted the good immediately and 60% were willing to wait (t: 3.87; p <.01). Since washing machines are on average valued higher than television sets, offered interest rates for washing machines are lower than for television sets leading to less patient behavior. Further, recall that in the control question for experiment 1 some subjects perceived the costs of delaying a washing machine to be higher than for the delay of a television set (see above). This also favors greater preference for immediate receipt of the former. More interesting is the effect of vividness on preference for immediate receipt. Logistic regression analyses were carried out for hedonic and utilitarian goods separately. Dependent variable in both analyses was 'preference for immediate receipt', independent variables were 'selling price' of the respective good and 'vividness' (dummy: yes or no). For the television set neither vividness (Wald:.62; n.s.) nor selling price (Wald: 2.3; n.s.) influences preference for immediate receipt (χ 2 of the model: 1.3; n.s; Nagelkerke Pseudo R 2 :.067). Hence, contrary to experiment 1, vividness did not affect intertemporal preferences for hedonic goods when financial compensation charges are involved. For the washing machine, vividness (Wald: 5.3; p <.05) raised preference for immediate receipt, but selling prices did not (Wald: 2.27; n.s.; χ 2 of the model: 8.45; p <.05; Nagelkerke Pseudo R 2 :.20). Thus, vividness raised the immediate attractiveness of utilitarian goods when financial compensation charges are involved. Consequently, using a financial measure for impatience reveals a stronger effect of vividness for utilitarian than for hedonic goods. In experiment 1 this effect was the reverse, as hypothesized (see Table 4.1 above). Table 4.4 summarizes preferences for experiment 2.

16 82 Chapter 4 Table 4.4 Intertemporal preferences for hedonic and utilitarian goods in experiment 2 Television set Washing machine Preference for the immediate receipt Vivid Non-vivid Total 17% 11% 14% (n=79) 61% 27%* 40% (n=53) * Differences in preferences for immediate receipt between vivid and non-vivid condition significant in a logistic regression analysis at p <.05. Discussion In experiment 2, vividness did not affect preference for immediately receiving the hedonic good. Subjects considered ƒ100 as enough compensation for a four weeks delay, irrespective of their valuation of the good and irrespective of whether the good was presented vividly or not. For a utilitarian good the appropriateness of this financial compensation depended on vividness but also not on the valuation of the good. For washing machines presented vividly ƒ100 were much less likely to be seen as an appropriate compensation than for washing machines presented non-vividly. This holds even though there are no effects of vividness on the valuation of the good, again ruling out the value effect suggested by Nisbett and Ross. Thus, vividness affects impatience for utilitarian goods more strongly than for hedonic goods. Apparently offering financial compensation lowered the deprivation effect for the hedonic good and increased the immediate attractiveness of the utilitarian good. Note, that in experiment 2 for the utilitarian good vividness had an even stronger influence on preference than valuation of the good. Experiment 3: design We conducted another experiment investigating the effect on vividness on hedonic and utilitarian goods. The experiment was carried out in the setting of experiment 1, therefore subjects and method are identical and will not be reported here in detail again. This time subjects stated exact appropriate compensation charges for delaying hedonic and utilitarian goods, presented vividly and non-vividly. That is, as in experiment 2 they had to determine adequate financial compensation for delaying these goods, but they had to do so even more carefully, because contrary to experiment 2 the compensation was not fixed but had to be determined by the subjects. The experiment was carried out because fixing the offered compensation may suppress changes in preference, e.g., because the offered compensation is too high to overrule the rise in attractiveness due to a vivid presentation. Again, the goods were television sets and washing machines with the same prices as above. Both goods were presented to subjects in sequence both either vividly or non-vividly. Vividness was manipulated as in experiments 1 and 2 and again selling prices were elicited to control for possible effects of value differences. Subjects had to delay goods either 5 weeks or 9 weeks. That is, if they had to delay a television first for 5 weeks, in the second choice problem they had to delay a washing machine for 9 weeks. Order of presentation was varied. Part of the sample first received a question concerning the delay of washing machines and part of the sample first received a question concerning the delay of television sets. Subjects specified and wrote down an amount minimally sufficient to compensate them for the respective delay.