Why do we value immediate rewards more than long-term rewards?
Hyperbolic Discounting
?Hyperbolic discounting is our inclination to choose immediate rewards over rewards that come later in the future, even when these immediate rewards are smaller.
Where this bias occurs
Consider the following hypothetical: John buys a lottery ticket every week. He hopes to someday win big. One fortunate day, against all odds, he does. John is now worth just over $5 million.
After a frenzy of celebrations and hugs, John drove to the lottery offices to claim his prize. When he arrived, the lottery director gave him a choice: he could either claim the $5 million now, or he could choose to receive $250,000 every year for the rest of his life instead. John was only 35. Quick mental math pointed to the second option generating more revenue for John if he lived past the age of 55— which he planned on. But, John imagined having a seven figure total in his bank account and relished at all the things he could buy today.
John decided to take the first option, even though he would receive less money from it in the long-run. His preference towards immediate benefits over future gain can be attributed to hyperbolic discounting.
