Save to My Latticework unsave

Hyperbolic Discounting
Hyperbolic Discounting
Hyperbolic Discounting
save0 saved view11.7K 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. Nam bonum ex quo appellatum sit, nescio, praepositum ex eo credo, quod praeponatur aliis. Mihi quidem Homerus huius modi quiddam vidisse videatur in iis, quae de Sirenum cantibus finxerit.

Itaque primos congressus copulationesque et consuetudinum instituendarum voluntates fieri propter voluptatem; Conclusum est enim contra Cyrenaicos satis acute, nihil ad Epicurum. Duo Reges: constructio interrete. Quae diligentissime contra Aristonem dicuntur a Chryippo. Nec vero alia sunt quaerenda contra Carneadeam illam sententiam. Facit enim ille duo seiuncta ultima bonorum, quae ut essent vera, coniungi debuerunt; Si quidem, inquit, tollerem, sed relinquo. De ingenio eius in his disputationibus, non de moribus quaeritur. Et quidem, Cato, hanc totam copiam iam Lucullo nostro notam esse oportebit; In quibus doctissimi illi veteres inesse quiddam caeleste et divinum putaverunt.

Primum in nostrane potestate est, quid meminerimus? Eodem modo is enim tibi nemo dabit, quod, expetendum sit, id esse laudabile. Non quam nostram quidem, inquit Pomponius iocans; Primum in nostrane potestate est, quid meminerimus? Ego vero isti, inquam, permitto. Satisne ergo pudori consulat, si quis sine teste libidini pareat? Tu vero, inquam, ducas licet, si sequetur;

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. Quam ob rem tandem, inquit, non satisfacit? Explanetur igitur. Duo Reges: constructio interrete. Cur deinde Metrodori liberos commendas? Vulgo enim dicitur: Iucundi acti labores, nec male Euripidesconcludam, si potero, Latine; Levatio igitur vitiorum magna fit in iis, qui habent ad virtutem progressionis aliquantum. Nec hoc ille non vidit, sed verborum magnificentia est et gloria delectatus. Ab his oratores, ab his imperatores ac rerum publicarum principes extiterunt. Paulum, cum regem Persem captum adduceret, eodem flumine invectio?

Non minor, inquit, voluptas percipitur ex vilissimis rebus quam ex pretiosissimis. Cur igitur, inquam, res tam dissimiles eodem nomine appellas? Sin dicit obscurari quaedam nec apparere, quia valde parva sint, nos quoque concedimus; Res tota, Torquate, non doctorum hominum, velle post mortem epulis celebrari memoriam sui nominis. Quia dolori non voluptas contraria est, sed doloris privatio. Falli igitur possumus. Non ego tecum iam ita iocabor, ut isdem his de rebus, cum L. Illum mallem levares, quo optimum atque humanissimum virum, Cn. Sed ad haec, nisi molestum est, habeo quae velim.

Traditur, inquit, ab Epicuro ratio neglegendi doloris. Vitae autem degendae ratio maxime quidem illis placuit quieta. Minime vero istorum quidem, inquit. In quibus doctissimi illi veteres inesse quiddam caeleste et divinum putaverunt. Aeque enim contingit omnibus fidibus, ut incontentae sint. Velut ego nunc moveor.

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.