Abstract

An experiment was originally intended to empirically estimate the strength of delayed reward discounting through the real option approach (Li, 2017). There we encountered an unknown effect we could not account for at the time. In this paper we offer an explanation of this anomaly. We hypothesize that when two of the three conditions for real option, namely, uncertainty and option to delay, are present, then a time-inconsistent behavior of present-biasedness would arise. When the third condition, namely, inability to reverse, is also present, then the full real option would emerge to cause delayed-reward-discounting behavior. We re-visited the original data and calculated the values of present-biasedness in the original experiment. Under different scenarios our calculations matched the observed anomaly.

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