Hyperbolic Discounting: Why You Are Dumb At Time

Given two rewards, we have a tendency to take the reward that we can get faster. We discount the later reward by a factor that increases with the delay. This is why we prefer a dollar today over three dollars tomorrow. A very small fraction of individuals would take the second option, because human beings are inherently present-biased. Hyperbolic discounting can result in poor decision-making for this exact reason.

Impulsive and instant gratification oriented decisions are incentivized by hyperbolic discounting. We do not feel the consequences at present. The burger grants us a quick rush of dopamine but sacrifices future health. This is one way to see with the lens of hyperbolic discounting: it blinds us to the future consequences of a decision by exaggerating present rewards. The term “hyperbolic” comes from the shape of the discounting curve, which drops steeply for short-term rewards and flattens over time, suggesting that the longer we wait, the less accurately we evaluate the future.

People will change their preference for things depending on how far future rewards are. One might take 50 dollars today over 100 in a year but choose 100 dollars in 11 years instead of 50 dollars in 10. The difference is, of course, the same. This is because humans rely heavily on the present moment to gauge value. The lure towards instant gratification is emotional, while delaying gratification is a more deliberate process. Simply because, to us, putting off rewards is not natural.

Short-term thinking has negative implications for all sorts of professions. Leaders pursuing short-term gains can jeopardize the long-term performance of their teams. The same applies to environmental and governmental policies, education and healthcare programs, and other commonly-underfunded high-impact projects because the benefits are not immediately visible, while the upfront costs are large. Naturally, this is harmful to public welfare. We all know how dangerous delaying repairs on, say, crumbling public transit systems can be.

It’s in our evolutionary nature to value immediate rewards because they ensured survival in resource-scarce environments. This mindset means we garner a sense of security from seizing the reward now rather than leaving it for an uncertain then. What if then means never? Long-term rewards are not always risky, but we know there is a window of opportunity for potential issues to arise, so it feels more reliable to take the rewards now and go on about our days. This is partly because we are terrible long-term planners in general. We are sufferers of a bad case of temporal myopia—shortsightedness in time.

Waiting is hard. It is no secret that putting something off is difficult. It sometimes takes great willpower and self-control not to indulge. Instant rewards, in stark contrast, provide us with that dopamine boost and rush of pleasure chemicals which satisfy our emotional cravings. It’s physically and mentally difficult not to give into the laziness, especially when our genome is literally geared to value short-term gratification.

Real life implications of hyperbolic discounting:

• Finance: you might spend your money on unnecessary items today instead of saving or investing them for your future self, so try and mitigate this by setting up automatic investments to bypass your in-the-moment decision-making;

• Health: you will choose a sugary snack now over a balanced meal because the reward is immediate, even though you compromise your long-term health, so replace your temptations with healthier alternatives—fruit instead of chocolates;

• Education: watching television shows instead of studying or developing a skill is a classic way to waste your life away, so set small milestones that reward you to maintain motivation and stay on track;

• Work: procrastinating is largely due to the immediate relief of effort, so you might employ Pomodoro and similar techniques to effectively split your long-term pursuits into short cycles for your brain to handle them easier;

• Consumerism: choosing to buy something on credit or in monthly installments is a trap of hyperbolic discounting, rather, implement a waiting period between seeing-wanting-purchasing to stymie this proclivity;

• Marketing: businesses use “buy now, pay later” and “instant discounts” and “limited time” offers to exploit hyperbolic discounting, but when you are aware, you can delay your decisions and not be manipulated so easily.

How you might use hyperbolic discounting as a mental model: (1) recognize present bias, acknowledging when a drive for immediate pleasure is taking over your decision-making apparatus; (2) reframe the delay, making future consequences more tangible by imagining how you would fail or by setting small and achievable milestones so you can “feel” the progress you are making; (3) use commitment devices, such as automatic savings, distraction blockers, and firm deadlines to enforce your decisions towards long-term rewards; (4) for major choices, use a “cooling-off” period, delaying them to evaluate the trade-offs more accurately; (5) practice is crucial, as hyperbolic discounting is nature half nurture, and the more self-control and awareness you have, the less you will fall for it.

Thought-provoking insights. “Don’t sacrifice what you want now for what you want most.” and “Patience is bitter, but it’s fruit is the sweetest.” scream how delaying gratification is sure to make the present moment slightly tangy but the future sweet. “In the moment of temptation, act like the person you want to become.” James Clear stirs us in the right direction, reminding us that it is hardest to stay on track when met with the opportunity to act out. Left unchecked, hyperbolic discounting can ruin your life—impulse purchases, binge- eating and watching behavior, substance abuse. Use this mental model, identify triggers, and build systems that work in your favor to delay gratification.

Questions to reflect on:

1. How can I prioritize long-term rewards over short-term gratifications in my decision-making more?

2. What strategies can I implement to resist the temptation of immediate gains?

3. What long-term goals do I sacrifice or have I sacrificed in the past due to my natural preference for instant gratification?

4. How can I weigh the true value of future rewards in comparison to immediate ones in my day-to-day living?

5. What methods can I use to remain committed to my long-term goals despite the allure of immediate rewards?

Quotes that encompass the concept:

1. "The ability to delay gratification is a sign of maturity." - Unknown author.

2. "Patience is bitter, but its fruit is sweet." Jean-Jacques Rousseau, French philosopher.

3. "The future depends on what you do today." - Mahatma Gandhi, Indian lawyer and anti-colonial nationalist.

Example use cases:

1. Saving for retirement: you can use strategies to overcome hyperbolic discounting by setting up automatic contributions to retirement accounts. This helps prioritize long-term financial security over immediate expenditures with little effort.

2. Health: you can apply techniques to resist present-bias by establishing healthy habits and routines. Concentrate on long-term health benefits rather than immediate pleasures like junk food, skipping workouts, or crash diets for fast but unsustainable results.

3. Education: students and teaching faculty can use commitment devices, such as enrolling in courses or joining study groups, to remain focused on long-term learning objectives in lieu of short-term distractions taking over.

4. Debt repayment: you can create a structured repayment plan to prioritize paying off debt, avoiding the temptation to spend money on immediate wants. This shifts the focus to long-term financial freedom.