#78 - What is Hyperbolic Discounting?
How to overcome the hyperbolic discount
Let's imagine a scenario where you win the lottery, and when you withdraw the money you are offered two possibilities, one being the total amount of the prize, around 10 million euros, or receiving around 200,000 euros every year. If you are 25 years old, which would you choose? The vast majority of people would prefer to receive the 10 million immediately, why does this happen?
The reason for this is that we prefer an immediate reward to a reward in the future, even if it is of lesser value, this is hyperbolic discounting.
This cognitive bias encourages impulsivity and the immediate reward over a higher value reward. Obviously, this impulsivity in one way or another affects us negatively either as individuals or as a collective; do we prefer the dopamine from a cigarette or the long-term effects?
Hyperbolic discount definition
The human being prefers options that are safe in the moment, as nobody assures us that in the long term it will change our life or our perception, so we would have to calculate all these possibilities at the moment of decision making, so, as I have repeated a thousand times, our brain is very lazy, we go for the "safe option".
All this happens because the further away the reward is, the more its value is diluted, and this is very important, in a non-linear way. Our perception of time is non-linear, especially at times when we know we are going to have a short-term reward, that term will be infinite in our perception because it is something we really want, thus reinforcing this bias.
The ways in which this bias can materialise within a digital product are free trial subscriptions (the user gets the product instantly, regardless of how much they have to pay in the future), buy now pay later pricing moderls, or the inclination to pay small monthly subscriptions instead of a much larger annual one (but more profitable in the short-medium term).
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