Relationship between an inconsistent degree of financial literacy and inconsistent decision-making in intertemporal choices.

Intertemporal choice refers to the decision-making process involving trade-offs between rewards available at different points in time (such as choosing between smaller immediate rewards versus larger rewards later on). Empirical evidence often deviates from the exponential preferences predicted by the normative model. A hyperbolic discount function better mirrors individual behavior, explaining temporal inconsistency - whereby preferences vary over time by applying a higher discount in the present. Hyperbolic preferences are associated with addictive behaviors, such as smoking and alcohol consumption, as well as depression or attention deficit hyperactivity disorder. Established measures in the literature quantify the extent of deviation from exponential trend exhibited by hyperbolic preferences. In addition to behavioral and cognitive factors, it is essential to incorporate financial literacy into the examination of individual decision-making behaviors. The present study analyzes the relationship between the degree of decision-making inconsistency and the degree of financial literacy inconsistency across three dimensions: knowledge, behavior, and attitudes. It aims to illustrate while financial literacy is important, it is not sufficient to ensure rational choices. Rather, it reveals a strong correlation among its dimensions. The results of this research could be included when creating investor profiles required by MiFID, considering insights from behavioral finance studies in these profiles. What is more, understanding psychological biases that can influence financial decision-making empowers investors to make more informed decisions and avoid common pitfalls.

The improving sequence effect on monetary sequences.

Experimental studies reveal a preference for improving income sequences, challenging the axioms of the discounted utility model, such as the present value maximization principle. Through an experiment, we test the existence of this anomaly on short and long-term income sequences, by confirming previous experimental evidence. Although the participants are aware of the present value maximization, they select improving sequences of income mainly to cover their future spending needs, to feel motivation at work, and to receive a signal of success and status. In order to include this sequence effect in a mathematical valuation model, we propose an alternative model to value sequences which outperforms the traditional discounting model by fitting the present value with the preferences of the participants.

A New Analysis on Self-Control in Intertemporal Choice and Mediterranean Dietary Pattern.

This paper completes Muñoz Torrecillas et al. (1) results and conclusions investigating the relationship between adherence to healthy dietary habits, specifically the Mediterranean Diet (hereinafter, MD), and impulsivity in intertemporal choices. Impulsivity can be defined as the strong preference for small immediate payoffs over larger delayed payoffs, and in the original study this behavior was captured by the parameter k (discount rate of the hyperbolic discount function), calculated using an automated scoring mechanism. Adherence to MD was measured by the KIDMED index and then grouped into three levels: high, medium, and low. While the authors observed that individuals in the high adherence group had the shallowest discounting and individuals in the low adherence group had the steepest discounting, the data were not statistically analyzed in depth. Therefore, the purpose of the present paper is to propose a preliminary quantitative model for this relationship and evaluate its significance. Tests revealed a significant interaction between adherence to MD and magnitude of delayed rewards when predicting discount rates. Specifically, the degree to which impulsivity decreases as adherence to MD increases is strongly influenced by delayed rewards of smaller magnitude. These findings are consistent with the authors' claims that healthy dietary habits may be closely linked with greater self-control when payoffs are small, and thus warrant further examination. The results do not indicate causality though, so future studies could also investigate the directions of this relationship as a means of developing behavioral interventions.

Measuring Impatience in Intertemporal Choice.

In general terms, decreasing impatience means decreasing discount rates. This property has been usually referred to as hyperbolic discounting, although there are other discount functions which also exhibit decreasing discount rates. This paper focuses on the measurement of the impatience associated with a discount function with the aim of establishing a methodology to compare this characteristic for two different discount functions. In this way, first we define the patience associated with a discount function in an interval as its corresponding discount factor and consequently we deduce that the impatience at a given moment is the corresponding instantaneous discount rate. Second we compare the degree of impatience of discount functions belonging to the same or different families, by considering the cases in which the functions do or do not intersect.