Hyperbolic Discounting

Joseph P. Redden

Hyperbolic discounting refers to the tendency for people to increasingly choose a smaller-sooner reward over a larger-later reward as the delay occurs sooner rather than later in time. When offered a larger reward in exchange for waiting a set amount of time, people act less impulsively (i.e., choose to wait) as the rewards happen further in the future. Put another way, people avoid waiting more as the wait nears the present time. Hyperbolic discounting has been applied to a wide range of phenomena. These include lapses in willpower, health outcomes, consumption choices over time, and personal finance decisions. The notion of discounting future rewards relative to immediate pleasure has a long history. People generally want rewards sooner rather than later. Thus, options that delay a reward appear less attractive, and people discount them. The neoclassical view of economics assumes that people discount a future reward by a fixed percentage for ...

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