Hyperbolic discounting is a psychological bias where people to prioritize immediate rewards and satisfaction over future rewards. It’s used in sales and marketing to encourage consumers to purchase based on the short-term reward, or instant gratification.
Table of Contents
What is hyperbolic discounting in marketing?
Hyperbolic discounting is a psychological bias where people to prioritize immediate rewards and satisfaction over future rewards. It’s used in sales and marketing to encourage consumers to purchase based on the short-term reward, or instant gratification.
Why is hyperbolic discounting used?
The cognitive bias was termed “hyperbolic discounting” by psychologist Richard Herrnstein in 1961. He noticed that subjects in his studies tended to look at rewards in proportion not only their rates and amounts, but also in accordance with their immediacy.
What is hyperbolic discounting in finance?
“Hyperbolic discounting is a cognitive bias, where people choose smaller, immediate rewards rather than larger later rewards and this occurs more when the delay is closer to the present than the future.” Hyperbolic discounting is usually studied by asking people if they would rather get $50 now or $100 next year.
How do you deal with hyperbolic discounting?
How to Manage Hyperbolic Discounting
- #1: LEARN: Build awareness of the concept. The first key to overcoming a cognitive bias is understanding it.
- #2: SUBTRACT: Automate your choices.
- #3: REWARD: Create short-term incentives.
- #4: COMMIT: Use other commitment devices.
What is the difference between exponential and hyperbolic discounting?
Whereas an exponential curve has a constant discount rate, a hyperbolic discount curve has a higher discount rate in the near future and lower discount rate in the distant future.
Is hyperbolic discounting cognitive bias?
Hyperbolic discounting, also called “present bias,” is a cognitive bias, where people choose smaller, immediate rewards rather than larger, later rewards. The discounted present value of the future reward follows a mathematical curve called a “hyperbola.”
Why do humans discount the future?
The discounting process is a way to convert units of value across time horizons, translating future dollars into today’s dollars. Discounting is used by decisionmakers to fully understand the costs and benefits of policies that have future impacts.
What is a sophisticated hyperbolic discounter?
A Sophisticated hyperbolic discounter has a nearly flat discount curve for the far future but is aware that his future self does not share this discount curve.
What is the opposite of hyperbolic discounting?
Delayed gratification is the behavioral opposite of hyperbolic discounting. Delayed gratification means “making a choice which limits the ability of getting something now, for the pleasure of being able to have something bigger or better later.”
Is hyperbolic discounting irrational?
Apparently, hyperbolic discounting was considered irrational under standard economic theory.
Who invented hyperbolic discounting?
Everybody has their own discount factor. Some people might value money in 6 months at, say, 75% of what they’d value it today. Others might value it at 90%. In the early 1980s, psychologist George Ainslie discovered something peculiar.
What is the difference between hyperbolic and exponential discounting?
The discount rate is constant. Whereas an exponential curve has a constant discount rate, a hyperbolic discount curve has a higher discount rate in the near future and lower discount rate in the distant future.
Who came up with hyperbolic discounting?
psychologist Richard Herrnstein
First, the psychologist Richard Herrnstein has modeled some behaviors quite well by assuming that α and β are equal. In this formulation, future rewards are discounted by a factor of 1 / (1+kt).