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Discounting and the Portfolio of Desires
Peter R. Killeen
Department of Psychology, Arizona State University
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.
Keywords: additive utility theory, general theory of discounting, probability and delay discounting,
portfolio diversification, liquidity
When the receipt of a good is delayed money is discounted much
more gradually than other goods such as food, entertainment,
alcohol, drugs, sex, and so forth. But when the receipt of money
is probabilistic, it is discounted at about the same rate as other
goods. These are just two of the many perplexities in the extensive
discounting literature. Another layer of complexity is that large
magnitudes are discounted over delays in their receipt more slowly
than small ones—the positive magnitude effect—but are discounted
more quickly in probability discounting—the negative magnitude
effect. Figure 1, after Estle et al. (2007), offers a paradigmatic
representation of these central issues. Their experimental procedure,
typical of discounting tasks, was:
Participants were told that on each trial, two amounts of a hypothetical
reward (money, beer, candy, or soda) would appear on the screen. For
the temporal-discounting task, they were instructed that one amount
could be received right now, whereas the other amount could be
received after some specified period of time. For the probability-
discounting task, they were instructed that one amount could be
received for sure, whereas the other amount could be received with
some specified probability. (p. 59)
After being asked to choose, the immediate or sure thing was
adjusted to achieve indifference between it and the delayed or
probabilistic one. The relative discount, the value of the immediate
sure thing divided by the value of the delayed or probabilistic one, is
then plotted as a discount function (e.g., Figure 1).
Why are money delay functions shallower than commodity
functions, why are there magnitude effects, and why are those for
delay and probability discordant? This article resolves these
questions with an existing theoretical model (additive utility theory
[AUT]; Killeen, 2009,2023). AUT is then extended to probability
discounting and to the many interesting effects of cognitive and
emotional manipulations and demographic correlates on the rate of
delay discounting, and why these variables play the roles that they
do. To set the stage, it is necessary to reconstruct the AUT of delay
discounting, as it forms the necessary foundation for this solution.
A General Frame
The utility of a package of goods, U(G), is given by some
concatenation of the variables considered in this article:
UðGa,d,p,nÞ=F½faðaÞ,fdðdÞ,fpðpÞ,fnðnÞ:(1)
Here, ais its amount, dis the delay of its receipt, pis the
probability of receiving it, and nis the diversification it affords.
The functions within the brackets, f
x
, are psychophysical value
functions (Stevens, 1986/1975), transforming the numbers on
which they operate into their psychological counterparts. F[]
concatenates those attributes and converts that combination into
the quantity on the left-hand side (lhs), the utility of the package.
This utility adds to that of the existing portfolio of goods, which
constitutes their reference level (Thaler, 1999). For the experiments
covered in this article, it is not necessary to determine the form of
the utility transformation F.
This document is copyrighted by the American Psychological Association or one of its allied publishers.
This article is intended solely for the personal use of the individual user and is not to be disseminated broadly.
This article was published Online First September 14, 2023.
Peter R. Killeen https://orcid.org/0000-0002-0889-4040
The author thanks Junyi Dai and Jonathan Friedel for their most helpful
comments on earlier drafts.
Correspondence concerning this article should be addressed to Peter R.
Killeen, Department of Psychology, Arizona State University, 405 Marcus
Drive, Prescott, AZ 86303, United States. Email: killeen@asu.edu
Psychological Review
© 2023 American Psychological Association 2023, Vol. 130, No. 5, 1310–1325
ISSN: 0033-295X https://doi.org/10.1037/rev0000447
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