The Stanford Marshmallow Experiment is a psychological study conducted in the late 1960s and early 1970s by psychologist Walter Mischel. The study examined the concept of delayed gratification by presenting young children with a choice between one small reward immediately or two small rewards if they waited for a short period of time. The results showed that the children who were able to delay gratification and wait for the larger reward tended to have better life outcomes in areas such as academic achievement, financial success, and personal relationships.
The relationship between the Stanford Marshmallow Test and interest rates is that they both involve the concept of delayed gratification. Just as the children in the experiment had to decide between a small reward immediately or a larger reward later, investors must decide whether to spend money now or invest it for a potentially larger return in the future. Interest rates play a critical role in this decision, as they represent the cost of delaying gratification and the potential reward for doing so.
Higher interest rates can make it more attractive to delay spending and invest money for a potentially higher return in the future. For example, if an individual has $1,000 and is considering whether to spend it on a new TV or invest it in a savings account, the interest rate on the savings account will influence the decision. A higher interest rate will make it more attractive to invest the money and delay the purchase of the TV in order to receive a larger reward in the future.
On the other hand, lower interest rates can make it less attractive to delay spending and invest money. This can stimulate spending and borrowing, as the cost of borrowing is lower and the opportunity cost of delaying gratification is reduced. For example, if interest rates are low, an individual may be more likely to finance a new car or home rather than saving up to pay for it in cash, as the cost of borrowing is lower and the reward for delaying gratification is reduced.
You can find the link to experiment from this link.
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