Delay of Gratification

Another trait not measured by the omnibus Big Five is deferred or delayed gratification. According to Hughes (2013, p. 74) Delay of Gratification refers to “a sensitivity to reward that is manifest in the willingness/ability to pass up enjoyment or

something of value now with the aim of achieving something of greater enjoyment or value in the future”. The inability to delay gratification is associated with the tendency of individuals to sacrifice long-term goals in favour of short-term goals, allowing them to experience an immediate gratification (Tice & Bratslavsky, 2000). According to Shamosh and Gray (2008) this concept is useful for studying self-control due to its reliable and stable assessment over time.

This trait is of importance for the aim of this study considering that any investment decision in essence is based to a large extent on the willingness/ability to forego an immediately rewarding outcome for an outcome at some future point in time. For example, many investors may act only upon more cautious, information gathering in order to experience greater certainty, which leads to investing more systematically and strategically. These investors prefer smaller or more modest rewards in the present in order to accumulate the sum of more modest rewards in future and therefore have a superior ability to delay gratification. As Hughes (2013) point out, individuals who have the ability to delay gratification are often those individuals who are frugal and exhibit financial prudence. In contrast, individuals who fail or are less able to delay gratification are hypothesised to lack the necessary planning skills and deliberation. They are likely to act imprudently, failing to consider the future consequences of their immediate actions or decisions, and will invest in a riskier manner.

It is argued that individuals who display the ability to delay gratification show a greater appreciation for the long-term consequences associated with risky financial decisions. Further to this, it is argued that these individuals may be more willing to make lower-risk financial decisions as a means of securing a certain financial reward in the future, at the expense of a higher but uncertain reward with larger probable losses.

Hypothesis 8: Delay of Gratification (ηηηη3) has a negative linear effect on Risk-

Tolerance (ηηηη4).

traits, have been associated with the ability to delay gratification. For example,

Extraversion is associated with a dispositional sensitivity to potential rewards. A

study conducted by Hirsh (2015) on savings rates in extraverted populations argued that extraverted individuals have a heightened sensitivity to immediate rewards (due to a responsive dopaminergic system which serves as the brain’s reward system) and tend to be less responsive to delayed rewards. During intertemporal choices (i.e. the relative value that people assign to two or more payoffs at different points in time), the dopaminergic system drives the preference for immediate gratification such that immediate rewards become more salient to extraverts when compared to long-term gains. Thus, these individuals discount rewards more steeply than introverts (Hirsh, 2015). It has also been hypothesised that extraverts have a stronger desire or value for high quality lifestyles and thus, an increased appetite for immediate consumption in fulfilment of that goal. Naturally, this may lead them to make riskier and often ill-calculated investment decisions based on the prospect of obtaining a higher return.

Translated to the aims of this research, it is argued that extraverted individuals make less deliberative financial decisions, i.e. act on less information and planning as per definition of Risk-Tolerance, based on their dispositional preference for immediate gratification.

Hypothesis 9: Extraversion (ξξξξ3)))) has a negative linear effect on Delay of

Gratification (ηηηη3).

Successful delayers can also be described as being open to experience. The basis for this argument resides in the ability of such individuals to divert attention inward and away from potentially tempting and frustrating aspects of the immediate environment (Mischel, Shoda, & Peake, 1988). McCrae and Costa (1987) described

Openness to Experience as encompassing the tendency to have a rich inner life and

to experience the world in unusual and creative ways. Therefore, it could be argued that such individuals are able to avoid focusing on the possibility of an immediate reward by thinking about future rewards in more abstract means.

reliable association with intelligence. That is, open individuals tend to display superior scores on tests of cognitive ability (Hirsh, 2015). Intelligence is deemed an important factor in delayed gratification, with greater cognitive ability predicting preferences for larger delayed rewards over smaller immediate rewards (Hirsh, 2015; Shamosh & Gray, 2008). As intelligence increases, individuals display increasing tendencies toward planning, foresight, and Delay of Gratification, all of which are relevant for the aims of this research in terms of the definition of Risk- Tolerance. That is, lower risk tolerant individuals will act upon deliberate planning and information gathering when engaging in financial decision making and thus intelligence is linked to lower levels of Risk-Tolerance.

Hypothesis 10: Openness to Experience (ξξξξ1) has a positive linear effect on

Delay of Gratification (ηηηη3).

Successful delayers may also be described as conscientious. It is possible to argue that the ability to sacrifice an immediately rewarding activity in pursuit of another (presently less desirable) activity that is likely to produce a greater reward in the future, often requires the will to achieve and a sense of self-discipline – qualities which are inherent in the definition of Conscientiousness. Individuals with higher scores on Conscientiousness are described as strong willed, determinant and purposeful (table 2.2) and therefore, it can be argued that such individuals could have the superior ability to forgo immediate gratification in pursuit of systematic and strategic longer term investments.

Hypothesis 11: Conscientiousness (ξξξξ2)))) has a positive linear effect on Delay of

Gratification (ηηηη3).