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Hyperbolic discounting is a cognitive bias where individuals tend to prefer smaller, immediate rewards over larger, delayed rewards. This bias reflects the human tendency to reduce the perceived value of delayed outcomes, often leading to choices that contradict long-term interests.
The hyperbolic discounting model suggests that the perceived value of a reward decreases non-linearly with the delay to its receipt. Unlike exponential discounting, which assumes a constant rate of discounting over time, hyperbolic discounting implies that the discount rate decreases as the delay increases. This is why immediate rewards are heavily favored even if the delayed rewards are objectively more valuable.
The tendency to favor immediate gratification over future benefits can lead to various negative outcomes, including poor financial planning, unhealthy lifestyle choices, and procrastination. These decisions often result in regret as the delayed benefits are not realized.
To counteract hyperbolic discounting, individuals can employ strategies such as setting clear long-term goals, using commitment devices, creating temporal benchmarks, and breaking tasks into smaller, manageable steps with intermediate rewards.
Some critiques of hyperbolic discounting challenge its universality and suggest that it oversimplifies human decision-making. Critics argue that individual differences, context, and environmental factors also play significant roles in how people evaluate delayed rewards.
A Theory of Hyperbolic Discounting and Its Effects on Intertemporal Choice
David Laibson (1997)
Journal of Economic Perspectives
Stronger effects of cognitive enhancers when deprivation is high: forces underlying hyperbolic discounting
Maciej Wilk and John Pierce (2004)
Psychological Review
The behavioral life-cycle theory of consumer behavior: A model of consumer frugality, deferred gratification, and discretionary spending
Shlomo Benartzi and Richard Thaler (1995)
Advances in Consumer Research