Temporal Discounting
The Psychology Behind It
Would you rather have $100 today or $110 in a month? Most people choose the $100 today. But if asked, "Would you rather have $100 in a year or $110 in a year and one month?" most people choose the $110. The time difference (one month) and the amount difference ($10) are identical in both cases. The only thing that changed is how close the reward is to now.
This inconsistency is called "hyperbolic discounting." Our value function drops steeply in the short term and then flattens out. Evolutionarily, this makes sense: the future is uncertain. A bird in the hand is worth two in the bush. Our ancestors needed to eat now to survive; saving for retirement wasn't a priority.
Real-World Examples
Health and Diet
We choose the immediate pleasure of a donut over the long-term reward of health. The donut is "now"; the heart disease is "later."
Finance
We spend money on gadgets and clothes today rather than saving for retirement. The future self who needs that money feels like a stranger to us.
Addiction
The immediate high of the drug outweighs the long-term destruction of health and relationships. The discounting curve for addicts is often extremely steep.
Consequences
Temporal discounting can lead to:
- Procrastination: We delay painful tasks (like studying) because we value the immediate leisure more than the future grade.
- Debt: We use credit cards to buy now and pay later, discounting the future pain of interest payments.
- Climate Change Inaction: We prioritize current economic growth over the future survival of the planet.
How to Mitigate It
To beat temporal discounting, we must bring the future closer.
- Empathy for Future Self: Visualize your future self vividly. Apps that age your face can actually increase savings rates because they make the future self feel real.
- Pre-commitment: Lock your future self in. Sign up for automatic 401(k) deductions. Buy an annual gym membership. Remove the choice from your impulsive present self.
- Bundle Temptations: Only allow yourself to do something you love (listen to a podcast) while doing something you delay (exercising).
Conclusion
Temporal discounting is the enemy of long-term goals. It is the voice that says "YOLO" when you should be saying "compound interest." By recognizing this bias, we can build structures that protect our future selves from our present impulses.