Why we value immediate rewards more than long-term rewards.


Hyperbolic Discounting

, explained.

What is Hyperbolic Discounting?

Most people, to some extent, try to plan for the future. But when most people make decisions, they often prioritize immediate benefits over future gains. The term hyperbolic discounting was chosen to illustrate this effect.

Why does it happen?

Why? Because if we were to plot our preferences in the short and long term on a graph, we would end up with a hyperbolic shape. This effect occurs because we have a non-linear perception of time and a temporal myopia, which makes clarity decrease as time increases. This phenomenon has applications in our everyday lives regarding health, consumption choices or financial decisions. It can cause us to make sub-optimal decisions, and can also be the root of more serious problems such as addiction and lack of self-control.


The classical example used to illustrate this tendency is a study in which participants were given the choice between receiving $50 immediately or $100 a year later. Most participants chose the $50. When given the choice between $50 in five years or $100 in six years, all participants opted to receive the $100. This shows that the reason for the first choice was not the advantage gained by receiving the money faster, but the psychological advantage of immediacy.