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Hyperbolic Discounting Effect
What Is the Hyperbolic Discounting Effect?
The Quick Answer
In Critical Thinking, the hyperbolic discounting effect is the tendency to prefer a near reward over a distant one.The Hyperbolic Discounting Effect: The Tug of Immediate Gratification
The hyperbolic discounting effect is a cognitive bias that reflects our tendency to prefer immediate rewards over larger but delayed rewards. It reveals our inherent inclination to prioritize instant gratification, even if it means sacrificing greater long-term benefits. Coined from the mathematical concept of hyperbolic functions, this bias highlights the way our brains perceive and value rewards over time.
To illustrate the hyperbolic discounting effect, let's consider a scenario. Imagine you are given two options: Option A is receiving $100 today, while Option B is receiving $150 one month from now. Despite the larger monetary value of Option B, many individuals would choose Option A because it provides immediate gratification. The allure of having the money in hand right away often overrides the consideration of waiting for a larger reward.
The hyperbolic discounting effect has significant implications in various areas of life, including personal finance, decision-making, and goal setting. In personal finance, people may prioritize small, impulsive purchases in the present over saving money for long-term goals like retirement. The allure of immediate enjoyment often leads to financial shortfalls in the future.This cognitive bias also affects decision-making when considering health-related choices. For example, individuals might choose to indulge in unhealthy food options that offer immediate pleasure instead of making healthier choices that would benefit their long-term well-being.
The hyperbolic discounting effect can also interfere with goal setting and the pursuit of long-term projects or aspirations. The allure of immediate distractions or instant gratification can hinder progress toward achieving more substantial and enduring goals.
To counteract the hyperbolic discounting effect, it is important to develop strategies that promote delayed gratification and long-term thinking. This can include creating incentives, such as rewarding oneself for reaching milestones along the way, or breaking down long-term goals into smaller, more achievable tasks. Setting reminders, creating accountability through external sources, and developing discipline can also help resist the temptation of immediate rewards.

Easy Definition of the Hyperbolic Discounting Effect
Don't judge an imminent reward to be more valuable than a future one just because it will happen soon. That's the hyperbolic discounting effect.
Academic Definition of the Hyperbolic Discounting Effect
The hyperbolic discounting effect is the tendency to show a preference for a reward that arrives sooner rather than later. Studies show that we are likely to discount the value of the later reward more as the length of the delay increases.
An Example of Hyperbolic Discounting Effect
Two sweets later or one now

This was an experiment in deferred gratification. Could the future reward outmatch the immediate reward? Well, for most of the children, it couldn't, despite many worthy attempts at imposing self-discipline. Interestingly, some of those who tried to defer their gratification (i.e., wait the 15 minutes) put their hands over the eyes to remove the temptation. This is a version of the Ostrich Effect. It's also interesting that those who resisted the longest tended to do better in their later lives (e.g., better exam results, better jobs). The point is this. Your brain will often opt for an imminent reward over a future one, even if the future one is bigger.
Another Example of Hyperbolic Discounting Effect
Now-you and future-you
Hyperbolic discounting is the reason most attempts at dieting fail. It's a simple concept. The rewards of dieting are so far in the future, your brain is easily distracted from those rewards. Faced with a chocolate biscuit, your brain has no trouble whatsoever giving it a high reward score, and this blots out the distant dieting reward of being slimmer. When you're not faced with an imminent reward (or when you're stuffed to the eyes with such rewards), the brain is very good at focusing back on the distant reward.This effect can create two personas: now-you and future-you. Now-you lives for the moment, whereas future-you invests wisely. Future-you is the one who bought the gym membership, the exercise bike and the basket full of fruit and veg. Now-you is the one who watches reality TV instead of going to the gym, hangs the shirts over the exercise bike and eats crisps. The secret to stopping now-you destroying future-you's intentions is… God only knows. Hyperbolic discounting is a powerful effect. It gets us all, because it takes real discipline to ignore now-you.

Right, that was just a long way of saying don't buy chocolate biscuits if you're on a diet. But, as we've spelt out, that's far better advice than saying don't eat chocolate biscuits if you're on a diet.
"I gotta work out. I keep saying it all the time. I keep saying I gotta start working out. It's been about two months since I've worked out. And I just don't have the time. Which uh... is odd. Because I have the time to go out to dinner. And uh... and watch tv. And uh…try to figure out what my phone number spells in words."
(Ellen DeGeneres)
A Practical Application of Hyperbolic Discounting Effect
Sell the dream

A cramped caravan that's too much effort to hook up to your car and drive to the sea to live amongst equally miserable ant-infested self-caterers? Or a caravan that gives them the freedom to see the UK's coastlines while sitting in the shade of the awning with a cold refreshing beer, listening to the cries of the gulls and watching their steaks sizzle on the BBQ? In all your dealings, buy "the truth" from their now-them, but sell "the dream" to their future-them.
Another Practical Application of Hyperbolic Discounting Effect
Give smaller rewards now to save money in the long term.
If you are an employer, you might be able to use hyperbolic discounting to your advantage. If you are struggling to fill a position, offer a "golden handshake" (i.e., offer the employee a bonus up front as opposed to at the end of year). Potential employees will be more attracted to it than an end-of-year bonus. Another advantage is that you will probably be able to offer less with a golden handshake, because to the employee, £1,000 now is more attractive than £2,000 in a year's time.
Summary of the Hyperbolic Discounting Effect
If you think somebody has failed to adhere to a long-term aim because they were "blinded" by a short-term gain, tell them they have been affected by the hyperbolic discounting effect.Critical Thinking Test
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