It is no revelation that people prefer immediate rewards. What is less

It is no revelation that people prefer immediate rewards. What is less well known is that people are willing to renounce a significant portion of a given reward in order to expedite delivery. This phenomenon is known as “discounting,” because the value of a delayed reward is discounted, or reduced, in the mind of the receiver. Discounting helps explain the straightforward “time value of money” (a dollar now is worth more than a dollar later), but its manifestations can be far more dramatic.

Behavioral economists have identified extreme discounting in experiments in which subjects were offered either a dollar immediately or three dollars the next day. Individuals who consistently choose significantly smaller rewards for their immediacy are described as “present-biased.” Present-bias may seem innocuous, but it has serious ramifications. In another experiment, young children were given a marshmallow, then told that if they could wait a few minutes to eat it, they would receive a second one. Those unable to endure the delay suffered from more behavioral problems in adolescence and scored markedly lower on standardized tests than the children who were able to wait and thereby earn another treat. Traits such as indolence and apathy may indeed be manifestations of present-bias; material success is predicated on one’s ability to recognize hedonistic impulses, understand their consequences, and delay or suppress gratification.

What was once known as “exponential discounting” (because the length of the delay before a reward was given seemed to correlate directly with the size of the perceived discount) has been renamed “hyperbolic discounting,” because the effects of time delay do not seem strictly linear. A study showed that people offered $50 now or $100 in a year were likely to choose the former. But when people were offered either $50 in 5 years or $100 in 6 years (the same choice 5 years in the future), the vast majority chose the latter. This experiment reveals the difficulty of making effective financial decisions about one’s future priorities, just as the choice to procrastinate requires the unlikely supposition that one’s future self will have a greater set of resources to accomplish the postponed task than one’s present self.

1. The function of the second paragraph within the passage may be most appropriately characterized as

(A) analyzing the psychological sources of the phenomenon introduced in the first paragraph
(B) elaborating upon and qualifying the main proposition put forth in the first paragraph
(C) providing an alternative point of view on the positions already established by the author
(D) illustrating one aspect of the phenomenon named in the first paragraph and offering possible social implications
(E) drawing general conclusions about specific examples presented earlier


2. The passage suggests which of the following about the traits of indolence and apathy?

(A) They are predicated on one’s material success.
(B) They may be regarded as the effects of a tendency toward extreme discounting.
(C) They may be manifested in present-bias.
(D) They may seem innocuous, but they have serious ramifications.
(E) They are the cause of one’s ability to identify and suppress hedonistic impulses.


3. It can be inferred that the word hyperbolic in the phrase “hyperbolic discounting” (Highlighted) signifies, in this context,

(A) the nonlinearity in the consequences of various delays
(B) the exaggeration of the effects of time delay
(C) the direct correlation between a delay’s duration and a perceived discount’s magnitude
(D) the exponential growth of the size of the discounting
(E) the lack of certainty in one’s perception of longer and shorter delays


4. According to the passage, which of the following is true of the children described in the passage who were able to wait to eat their first marshmallow?

(A) They scored lower on standardized tests than children unable to wait.
(B) They suffered more frequently from behavior problems as adolescents.
(C) They each received a second marshmallow as part of the experiment.
(D) They could be characterized as indolent or apathetic.
(E) They can accurately be described as present-biased.