The Retrospective Evaluation of Payment Sequences: Duration Neglect and Peak-and-End-Effects

Thomas Langer (), Rakesh Sarin () and Martin Weber
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Thomas Langer: Westfälischen Wilhelms-Universität Münster Lehrstuhl für BWL, insbesondere Finanzierung, Postal: Universitätsstraße 14-16 48143 Münster
Rakesh Sarin: UCLA, Anderson School of Management, Postal: 110 Westwood Plaza, Box 951481,Los Angeles, CA 90095-1481, USA

No 00-45, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: In this paper we present experimental research examining the ability of individuals to make good retrospective evaluations of payment sequences. Inspired by the evidence on systematic biases in the retrospective evaluation of affective episodes involving pain and pleasure we designed choice scenarios for payment sequences in which the existence of peak and end effects as well as duration neglect could be examined. There are two main results: We do not observe a systematic impact of payment sequence features (other than its sum) on the choices if subjects merely get delivered the payments without any affection or effort. Subjects, by and large, choose the sequence with the highest total payment. In a second scenario, in which payments were linked to the subjects? effort and performance in strenuous tasks, we observe a strong effect of duration neglect and a weaker, but still significant end effect. We further find that the mere number of peak losses in a sequence strongly influences its attractiveness. In this scenario subjects do not often choose the sequence with the highest total payment.

Pages: 25 pages
Date: 2000-10-03
New Economics Papers: this item is included in nep-exp
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Working Paper: The retrospective evaluation of payment sequences: duration neglects and peak-and-end-effects (2000)
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