Hyperbolic Discounting
LIVE EACH DAY AS IF IT WERE YOUR LAST – BUT ONLY ON SUNDAYS
The introduction of ‘now’ causes us to make inconsistent decisions. Science calls this phenomenon hyperbolic discounting. Put plainly, the closer a reward is, the higher our ‘emotional interest rate’ rises and the more we are willing to give up in exchange for it. The majority of economists have not yet grasped that we respond so subjectively and inconsistently to interest rates. Their models still depend on constant interest rates and are correspondingly questionable.
Hyperbolic discounting, the fact that immediacy magnetises us, is a remnant of our animal past. Animals will never turn down an instant reward in order to attain more in the future.
You can train rats as much as you like; they’re never going to give up a piece of cheese today to get two pieces tomorrow. But wait a minute: don’t squirrels manage to gather food and save it for much later? Yes, but that’s pure instinct and – verifiably – has nothing to do with impulse control or learning.
Marshmallow experiment
Though instantaneous reward is incredibly tempting, hyperbolic discounting is still a flaw. The more power we gain over our impulses, the better we can avoid this trap. The less power we have over our impulses – for example when we are under the influence of alcohol – the more susceptible we are. Viewed from the other side, if you sell consumer products, give customers the option of getting their hands on the items straight away. Some people will be willing to pay extra just so they don’t have to wait.