Natural Rationality

Humans Can Adopt Optimal Discounting Strategy under Real-Time Constraints

Schweighofer N, Shishida K, Han CE, Okamoto Y, Tanaka SC, et al. (2006) Humans Can Adopt Optimal Discounting Strategy under Real-Time Constraints. PLoS Comput Biol 2(11): e152

Synopsis
When we make a choice between two options, we compare the values of their outcomes and select the option with a larger value. However, what if one option leads to a larger delayed reward and the other leads to a smaller more immediate reward? Naturally, we assign a larger value for a larger reward, but it is “discounted” if the reward is to be delivered later. Thus, the value is a monotonically decreasing function of the delays. Previous behavioral studies have repeatedly demonstrated that humans and animals discount delayed rewards hyperbolically. This has practical importance, as hyperbolic discounting can sometimes lead to “irrational” preference reversal: for instance, an individual may prefer two apples in 51 days to one apple in 50 days, but if the days come closer, he prefers one apple today to two apples tomorrow. On the contrary, exponential discounting is always “rational,” as it predicts constant preference. Here, in a new task that mimics animal foraging, and that uses delayed monetary rewards, Schweighofer and colleagues showed that humans can also discount reward exponentially. Furthermore, it is remarkable that by adopting exponential discounting, their subjects maximized their total gain. Thus, depending on the task at hand, the authors' study suggests that humans can flexibly choose the type of reward discounting, and can exhibit rational behavior that maximizes long-term gains.