Hyperbolic Discounting: The Math of Impatience
Hyperbolic Discounting is the tendency for people to prefer smaller, sooner payoffs over larger, later payoffs, with the preference reversing as both rewards move further into the future.
The Psychology Behind It
Unlike exponential discounting (rational, consistent), we discount hyperbolically - steeply in the near term, shallowly in the long term. This creates time-inconsistent preferences: we plan to be patient in the future but are impatient now.
Real-World Examples
1. The Classic Experiment
Choose: $50 today or $100 in a year? Most pick $50 today.
Choose: $50 in 5 years or $100 in 6 years? Most pick $100 in 6 years.
The time gap is the same, but proximity changes preference.
2. Credit Cards
Buying now with credit (immediate gratification) despite high interest (future cost).
3. Exercise
"I'll start my diet on Monday" - future-you is patient, but when Monday comes, present-you wants pizza.
Consequences
- Debt: High-interest borrowing for immediate consumption
- Procrastination: Delaying important tasks
- Health Decline: Choosing immediate pleasure over long-term health
How to Mitigate It
- Commitment Devices: Lock in future-oriented choices now
- Reframe Decisions: Think in terms of "per day" costs/benefits
- Reduce Delay: Make future rewards more immediate (e.g., weekly savings goals)
Conclusion
Hyperbolic Discounting explains why we're our own worst enemy. We make plans we won't keep because our preferences shift over time.