Save to My Latticework unsave

Hyperbolic Discounting
Hyperbolic Discounting
Hyperbolic Discounting
save0 saved view8.7K views
Share this with your network
Share this with your network
Overview

So you suck at delayed gratification? Can’t consistently invest your savings for the big pay off for when you retire? Or perhaps you’re ...

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Bork Diodorus, eius auditor, adiungit ad honestatem vacuitatem doloris. Duo Reges: constructio interrete. Intrandum est igitur in rerum naturam et penitus quid ea postulet pervidendum; An me, inquam, nisi te audire vellem, censes haec dicturum fuisse? Non quaero, quid dicat, sed quid convenienter possit rationi et sententiae suae dicere.

Quacumque enim ingredimur, in aliqua historia vestigium ponimus. Diodorus, eius auditor, adiungit ad honestatem vacuitatem doloris. Cuius quidem, quoniam Stoicus fuit, sententia condemnata mihi videtur esse inanitas ista verborum. Et quidem, inquit, vehementer errat; Idem etiam dolorem saepe perpetiuntur, ne, si id non faciant, incidant in maiorem. Aliter autem vobis placet. De maximma autem re eodem modo, divina mente atque natura mundum universum et eius maxima partis administrari. Ita multa dicunt, quae vix intellegam. Atque adhuc ea dixi, causa cur Zenoni non fuisset, quam ob rem a superiorum auctoritate discederet. Philosophi autem in suis lectulis plerumque moriuntur. A quibus propter discendi cupiditatem videmus ultimas terras esse peragratas. Tu autem negas fortem esse quemquam posse, qui dolorem malum putet.

Quid est igitur, cur ita semper deum appellet Epicurus beatum et aeternum? Quid, cum volumus nomina eorum, qui quid gesserint, nota nobis esse, parentes, patriam, multa praeterea minime necessaria? Quamquam haec quidem praeposita recte et reiecta dicere licebit. Roges enim Aristonem, bonane ei videantur haec: vacuitas doloris, divitiae, valitudo; Non enim, si omnia non sequebatur, idcirco non erat ortus illinc. Sed ad bona praeterita redeamus. Huius ego nunc auctoritatem sequens idem faciam.

Share this model with your network to be smarter, faster, together!
Actionable Takeaways
  • For decisions, use slow thinking to interrupt your bias. 

Organise processes or teams to interrupt ...

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Igitur neque stultorum quisquam beatus neque sapientium non beatus. Duo Reges: constructio interrete. Universa enim illorum ratione cum tota vestra confligendum puto. Quia, si mala sunt, is, qui erit in iis, beatus non erit. Quid ergo hoc loco intellegit honestum? Cur igitur, cum de re conveniat, non malumus usitate loqui? Eam tum adesse, cum dolor omnis absit;

Quis istud possit, inquit, negare? Invidiosum nomen est, infame, suspectum. Inde sermone vario sex illa a Dipylo stadia confecimus. Quid, si non sensus modo ei sit datus, verum etiam animus hominis?

Non autem hoc: igitur ne illud quidem. Praeterea sublata cognitione et scientia tollitur omnis ratio et vitae degendae et rerum gerendarum. Immo istud quidem, inquam, quo loco quidque, nisi iniquum postulo, arbitratu meo. Cur tantas regiones barbarorum pedibus obiit, tot maria transmisit? Tum ille timide vel potius verecunde: Facio, inquit. Nihil illinc huc pervenit. Quod ea non occurrentia fingunt, vincunt Aristonem; Venit ad extremum;

Limitations

Some criticise the evidence behind Hyperbolic Discounting as, similar to so many behavioural science research, largely relying on university students as they are a cheap and available group of test subjects. Such critics argue that more experienced and older people consider longer views and criteria for their decision making, though this has not been proven through research yet. 

Other criticisms do not undermine the observed behaviour behind Hyperbolic Discounting — of people choosing instant gratification — rather the reasoning behind it. So, for example, some point to the role of cravings, arousal and emotions in people seeking immediate rewards — though again, in my view this is relatively academic as the end result remains the same.

In Practice

$100 versus $120.

Hyperbolic discounting is perhaps best known for the $100 versus $120 experiment. Participants in this experiment were offered a choice between receiving $100 today versus $120 in a week. Most people would choose the $100 immediately. Then they were offered the choice between $100 in a year versus $120 in a year and a week. From a rational perspective, these questions are identical — yet when adding the ‘year’, most people chose to take the $120 option. 

Climate change. 

This one’s a bit opinionated perhaps, but is it really? It is now pretty clear that climate change is a massive threat to humanity — there, I said it. Yet humans are reticent to act. Compare that to how most governments invested in dealing with the threat of covid when it was having clear immediate impacts. The immediate threat gets the attention, the distant one can be all too easily ignored. 

Build your latticework
This model will help you to:

Hyperbolic discounting is a core model in behavioural economics and has countless implications. 

Use the following examples of connected and complementary models to weave hyperbolic discounting into your broader latticework of mental models. Alternatively, discover your own connections by exploring the category list above. 

Connected models: 

  • Fast and slow thinking: the model that explains the broader backdrop of heuristics and behavioural economics. 
  • Loss aversion: another fundamental and intrinsically linked model

Complementary models: 

  • Habit loop: particularly B.J. Foggs idea of ‘tiny habits’ or immediate rewards. 
  • Systems versus goals: in establishing the routine over relying on a distant goal. 
  • Divide and conquer: in respect to breaking down large projects. 
  • Cialdini’s six principles of persuasion: particularly in terms of freemium and quick value in relation to reciprocity. 
Origins & Resources

Hyperbolic discounting was built on the work of Richard Hernstein who developed a ‘matching law’ before coining the term ‘hyperbolic discounting’ in a 1961 paper. 

My Notes

    Nothing here yet. Join ModelThinkers and login to be the first to comment.
Already a ModelThinkers member? Please log in here.

Oops, That’s Members’ Only!

Fortunately, it only costs US$5/month to Join ModelThinkers and access everything so that you can rapidly discover, learn, and apply the world’s most powerful ideas.

ModelThinkers membership at a glance:

Small mark
UNLOCK EVERYTHING
Access all mental models and premium content.
Small mark
BUILD YOUR LATTICEWORK
Save models to your personal list.
Small mark
QUICKLY MEMORISE MODELS
Use our Learn function to embed models to memory
Small mark
PERSONALISE MODELS
Add your own notes and reminders.
Small mark
BUILD YOUR ‘EXTERNAL BRAIN’
Discover a new idea? Capture it by adding a new model.
Small mark
JOIN THE MT COMMUNITY
Rate models, comment and access exclusive events.

“Yeah, we hate pop ups too. But we wanted to let you know that, with ModelThinkers, we’re making it easier for you to adapt, innovate and create value. We hope you’ll join us and the growing community of ModelThinkers today.”

Arun Pradhan & Shai Desai
CoFounders, ModelThinkers.

You Might Also Like:

- Actionable summaries of the world's most powerful ideas.