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Unnamed comments on Time and Effort Discounting - Less Wrong
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Some friends are in the process of buying a house costing about a million dollars. There was some serious haggling over the final price, to which my friend finally replied "Forget about it, it's just thirty thousand dollars, it's not worth the conflict." And after all, paying $1,100,000 vs. $1,130,000 doesn't seem like an interesting difference.
I imagine that if they were haggling over a car that cost $20,000, they would move heaven and earth to avoid paying $30,000 more; $20,000 vs. $50,000 seems a major difference.
This seems a lot like hyperbolic discounting, where having to wait ten minutes makes a big difference if it's ten minutes from now, but very little difference if it's a year vs. a year + ten minutes. Spending $30,000 makes a big difference if it's the first $30,000, but very little if it's $1.1 million + $30,000.
See today's post on prospect theory for more.
The Kahneman & Tversky jacket-calculator study is the classic example of this, if you want to switch from thought experiment to actual experiment.
This topic also came up in another post; I left I comment about it there.
One view of what's happening is that discounting just reflects people's intuitive sense of magnitude, which is nonlinear. It may not be completely logarithmic, but it's at least somewhere in between linear & logarithmic. So someone faced with a temporal discounting choice effectively thinks "9 years is farther away than 8 years, so I'll demand more money to wait 9 years based on my intuitive sense of how much farther away it is." Because of the nonlinear sense of magnitude, you can't just subtract the two numbers and call it a 1 year gap, since it feels smaller than the gap between 1 year vs. 2 years from now. Similarly, the friend in your house example effectively thinks "$1,130,000 is more money than $1,100,000, so I'll put in more effort (and put up with more conflict) to try to get $1,130,000 based on my intuitive sense of how much more it is." But their intuitive sense of magnitude makes that gap seem relatively small, smaller than the gap between $50,000 and $20,000, so they don't haggle. One gets called temporal discounting and the other gets called diminishing marginal utility, but they can both reflect this same nonlinear sense of magnitude.