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Hyperbolic Discounting
Hyperbolic Discounting
Hyperbolic Discounting
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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. Quoniam, si dis placet, ab Epicuro loqui discimus. Sine ea igitur iucunde negat posse se vivere? Itaque primos congressus copulationesque et consuetudinum instituendarum voluntates fieri propter voluptatem; Nam, ut sint illa vendibiliora, haec uberiora certe sunt. Effluit igitur voluptas corporis et prima quaeque avolat saepiusque relinquit causam paenitendi quam recordandi. Obsecro, inquit, Torquate, haec dicit Epicurus? Quam ob rem tandem, inquit, non satisfacit? Duo Reges: constructio interrete.

Modo etiam paulum ad dexteram de via declinavi, ut ad Pericli sepulcrum accederem. Videmusne ut pueri ne verberibus quidem a contemplandis rebus perquirendisque deterreantur? Quid enim de amicitia statueris utilitatis causa expetenda vides. Desideraret enim valitudinem, vacuitatem doloris, appeteret etiam conservationem sui earumque rerum custodiam finemque, sibi constitueret secundum naturam vivere. Sed tamen est aliquid, quod nobis non liceat, liceat illis. Negat enim summo bono afferre incrementum diem. Invidiosum nomen est, infame, suspectum.

A villa enim, credo, et: Si ibi te esse scissem, ad te ipse venissem. Omnia contraria, quos etiam insanos esse vultis. Aliter homines, aliter philosophos loqui putas oportere? Ne in odium veniam, si amicum destitero tueri. Nam memini etiam quae nolo, oblivisci non possum quae volo. Quia nec honesto quic quam honestius nec turpi turpius.

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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. Faceres tu quidem, Torquate, haec omnia; Eam tum adesse, cum dolor omnis absit; Quae animi affectio suum cuique tribuens atque hanc, quam dico. ALIO MODO. Duo Reges: constructio interrete. Vitae autem degendae ratio maxime quidem illis placuit quieta. Quicquid porro animo cernimus, id omne oritur a sensibus; Quid, cum fictas fabulas, e quibus utilitas nulla elici potest, cum voluptate legimus?

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Quoniam, si dis placet, ab Epicuro loqui discimus. Et non ex maxima parte de tota iudicabis? Quae fere omnia appellantur uno ingenii nomine, easque virtutes qui habent, ingeniosi vocantur. At vero illa, quae Peripatetici, quae Stoici dicunt, semper tibi in ore sunt in iudiciis, in senatu. Hoc ne statuam quidem dicturam pater aiebat, si loqui posset. Summum ením bonum exposuit vacuitatem doloris; Nam diligi et carum esse iucundum est propterea, quia tutiorem vitam et voluptatem pleniorem efficit. Vitiosum est enim in dividendo partem in genere numerare.

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

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