Overcoming Temptation: Incentive Design For Intertemporal Choice

TL;DR

This paper develops a formal model of intertemporal choice incorporating factors like discounting and willpower, and demonstrates that personalized incentives can significantly improve long-term decision making.

Contribution

It introduces a Markov decision process model for intertemporal choice and shows how customized incentives outperform generic ones in motivating goal-oriented behavior.

Findings

Customized incentives improve goal achievement in delayed gratification tasks.

The model accurately predicts individual decision-making behavior.

Personalized incentives outperform one-size-fits-all solutions.

Abstract

Individuals are often faced with temptations that can lead them astray from long-term goals. We're interested in developing interventions that steer individuals toward making good initial decisions and then maintaining those decisions over time. In the realm of financial decision making, a particularly successful approach is the prize-linked savings account: individuals are incentivized to make deposits by tying deposits to a periodic lottery that awards bonuses to the savers. Although these lotteries have been very effective in motivating savers across the globe, they are a one-size-fits-all solution. We investigate whether customized bonuses can be more effective. We formalize a delayed-gratification task as a Markov decision problem and characterize individuals as rational agents subject to temporal discounting, a cost associated with effort, and fluctuations in willpower. Our theory is able to explain key behavioral findings in intertemporal choice. We created an online delayed-gratification game in which the player scores points by selecting a queue to wait in and then performing a series of actions to advance to the front. Data collected from the game is fit to the model, and the instantiated model is then used to optimize predicted player performance over a space of incentives. We demonstrate that customized incentive structures can improve an individual's goal-directed decision making.