25 March 2019

Waiting for Income

Save your money. (Barney Large Coin
Piggy Bank from www.amazon.co.uk)
Welcome back. Today’s question is Why do some people make more money? If I may get personal, what factors had the greatest effect on your earnings? Go ahead, fill in the blanks.

Researchers from Temple University did. Along with the expected results, such as education and occupation, they found one interesting surprise: Delay discounting ranked high as a predictor of future income.

What’s Delay Discounting?
If you had to choose between receiving $1 today or $2 tomorrow, would you take the $1? Those who take the smaller reward today rather than wait for the larger reward tomorrow are discounting the value of the future reward. Delay discounting refers to how much a person devalues future rewards compared to present rewards.

The classic studies of delayed gratification--the marshmallow experiment--were conducted at Stanford University in the late 1960s and early 1970s. Children were offered one reward (e.g., a marshmallow) immediately or two rewards if they waited about 15 minutes while the person administering the test left the room. Get this: Follow-up studies found children who waited longer tended to have better life outcomes.

Factors Related to Future Income

To improve upon earlier investigations of income attainment, the Temple researchers tested a large, diverse population: 2,564 racially and ethnically heterogeneous, male and female participants, 25 to 65 years in age, pre-high school to PhD in education, $10,000 to $235,000 in annual income and from over 1,700 zip codes.

In addition, they employed a novel analytic approach, using three machine-learning algorithms to model the relationship between income and key factors identified in earlier research--age, gender, ethnicity, height, race, zip code, education, occupation and delay discounting behavior.

Measuring Delay Discounting
Test participants were initially asked to choose between $500 immediately versus $1,000 at five different delays (1 day, 1 week, 1 month, 6 months, 1 year). If they chose the immediate reward, the next question offered an immediate reward midway between the prior immediate reward and zero. If they chose the delayed reward, the next question offered an immediate reward midway between the prior immediate reward and $1,000.

This narrowing pattern continued until participants’ choices converged on the dollar amount subjectively equivalent to the discounted delayed reward if the value were offered immediately. Lower dollar amounts indicated increased devaluation of delayed rewards in favor of immediate rewards.

Study Findings

Modeling with the three machine-learning algorithms, the researchers found that individual differences in income were explained by factors that could be ranked in a consistent manner.

Average ranking of factors according to how well they predicted salary by three machine-learning algorithms (from www.frontiersin.org/articles/10.3389/fpsyg.2018.01545/full).
Occupation and education were paramount with each algorithm, and on average, zip code and gender were the next most important factors. The fifth most important factor was delay discounting, which was more predictive than ethnicity, height age and race.

One study shortcoming is that representation of African Americans and Hispanics in the sample population was only about half that in the U.S. population at large.

Wrap Up
As to why individual differences in discounting of future rewards predicts income attainment, the researchers speculate that it may be a consequence of the correlation between higher discounting and undesirable life choices.

Difficulties delaying gratification may also be affected by episodic future thinking, i.e., the ability to project oneself into the future to pre-experience an event. If people can vividly imagine themselves in the future with the larger rewards, they are more likely to be patient.

So, relax. As you’ve likely heard, all things come to those who wait. Thanks for stopping by.

P.S.
Study of delay discounting for income attainment in Frontiers in Psychology journal: www.frontiersin.org/articles/10.3389/fpsyg.2018.01545/full
Articles on study on ScienceDaily and ScienceAlert websites: www.sciencedaily.com/releases/2018/09/180903101741.htm
www.sciencealert.com/your-ability-delay-instant-gratification-predict-money-earn-delay-discounting-marshmallow-test
Marshmallow experiment: en.wikipedia.org/wiki/Stanford_marshmallow_experiment
Update study of children’s delay of gratification in Developmental Psychology journal: psycnet.apa.org/record/2018-29923-001?doi=1

A version of this blog post appeared earlier on www.warrensnotice.com.

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