Hyperbolic discounting, the bias that pushes you to make bad decisions

Imagine you have the option of receiving 50 euros right now or 100 next week. What would you choose? If the old saying “a bird in the hand is worth two in the bush” comes to mind, you would probably go for the first option. And you are not alone because all of us, at some point or another, have fallen into what is known as “hyperbolic discounting”, a cognitive bias that pushes us to prioritize the present and that, without a doubt, can be convenient in some circumstances, but in others it can be short-sighted, irrational and even harmful to ourselves.

What exactly is the hyperbolic discounting bias?

Hyperbolic discounting is a bias that pushes us to choose immediate rewards over a longer path whose reward will come in the more distant future, even though those short-term rewards may be smaller and less convenient.

It happens when we decide to binge watch TV instead of studying for an upcoming exam, when we stay on the couch instead of going to the gym, or when we buy something unnecessary instead of saving for other, more important, long-term projects.

We fall into the hyperbolic discounting bias every time we choose the option:

• More comfortable, to avoid greater effort in the long term.
• More immediate, so we don’t have to wait too long.
• Easier to achieve, to avoid challenges and not expose ourselves to failure.
• Better known as a way to avoid the discomfort caused by uncertainty.
• More instantly gratifying, so we don’t have to activate our willpower.
• More obvious, to avoid thinking, reflecting and questioning things.

This bias is based on our tendency to “discount time.” That is, the value we attribute to an event changes depending on the timeline it is on. To analyze the impact of a future situation, we “bring” it into the present and adjust its value from the current perspective.

We often do this process – which consists of evaluating decisions over different time horizons – subconsciously. In the case of hyperbolic discounting, the passage of time causes the reward to devalue. That is, by perceiving it as more distant, we tend to undervalue it. Why? Simply because we give more weight to gains or losses that occur in the immediate future than to those that occur at a more distant point in time. We find it difficult to think long-term and objectively weigh the consequences of more distant events.

Evolutionary lags, conflicting interests and uncertainty

The hyperbolic discount bias ends up generating a conflict between what is optimal from the current perspective and what is ideal from the future perspective. Therefore, it does not always help us make the most convenient decisions, but makes us act on impulse, driven by presentism.

To a large extent, hyperbolic discounting has an evolutionary explanation. Our ancestors probably didn’t think much into the distant future, as they faced multiple threats every day and had a low life expectancy. At the same time, if they found an antelope, they would probably hunt it down and eat it immediately, not let it escape to wait for a larger prey. As a consequence, our brain’s temporal goal setting is designed to maximize the immediate reward rate.

In this sense, neuroscience has confirmed that hyperbolic discounting is an inherent consequence of the architecture of our brain. When decisions are made in different time frames, different brain areas are activated. When the decision or reward is immediate, the limbic system comes into play, which is responsible for capturing and generating emotional and instinctive responses.

However, when the decision or reward requires long-term planning, the frontal lobes come into action, activating more rational thinking that helps us plan. In a way, when we find ourselves at a time crossroads, it is as if two parts of our brain are “wrestling.” On the one hand, the limbic system pushes us to take advantage of the most immediate reward, and on the other, the frontal lobes encourage us to look at the long term.

Obviously, the shadow of unpredictability also plays a role. Since we know that we cannot predict with certainty what will happen in the future, as things can go wrong, the prospect of coming away empty-handed is a powerful incentive to take advantage of the immediate reward.

Our tendency to procrastinate also plays a role. If you are one of those people who tend to put off less pleasant tasks until tomorrow, you are more likely to be a victim of the hyperbolic discounting bias. It has also been observed that more hedonistic, impulsive and undisciplined people tend to be more likely to opt for immediate rewards as they do not tend to look at the long term.

How to overcome hyperbolic discounting bias?

There are times when the immediate option is the best choice, but this is not always the case, especially when we set long-term life goals, such as studying a degree, creating a healthy habit or building a relationship. In many cases, we must be able to look at the long term and inhibit the impulsive response that pushes us to take what is at hand. How can we achieve this?

1. Take your time. Before deciding on one option or another, take your time. This will allow you to take a psychological distance that will help you deactivate the limbic system and give way to a more rational mind, so that you can weigh the pros and cons of each option.
2. Set up commitment devices. These are voluntary, self-imposed strategies specifically designed to align your current actions with your long-term goals. For example, if you need to save, you can create automatic savings plans, and if you want to reduce your time on social media, you can set usage limits on your phone or turn off notifications to avoid distractions.
3. Avoid temptations. Make sure you make decisions before temptations get the better of you. If you know it’s easy to fall into the temptation of spending on impulse purchases or skipping your gym session, make a commitment in advance. Remove obstacles from your path, such as processed foods from your pantry if you want to diet or cigarettes from your home if you’re thinking about quitting smoking.
4. Remember your initial motivation. If you have chosen a long-term reward, it is likely that halfway through your journey your strength will falter. At that point, it is advisable to resort to reminders (visual or written) about the positive effects of maintaining your decision in the long term or the reasons that led you to make it.
5. Make the future reward more tangible.  To overcome hyperbolic discounting bias, there’s nothing better than adding value to the reward. This involves visualizing the prize at the end of the road or imagining how you’ll feel when you achieve your goal. This will help you stay true to your initial plan.

Finally, if you have trouble taking the long view when making decisions, it may help to engage in abstract thinking—looking at the bigger picture, rather than focusing too much on the details. If you focus on the minutiae, you may tend to choose the most immediate option, but if you can see the bigger picture, you may opt for a more advantageous option in the long run.

Understanding the biases that operate when we make decisions and recognizing their influence on our choices – daily and vital – is a good start to get moving in the direction we really want to go.

References:

Ayuso, M. & Martínez, C. (2020) La irracionalidad humana: el descuento hiperbólico en cuestiones de dinero y salud. Trabajo de Fin de Grado: Universidad Pontificia Comillas.

Haith, A. M.; Reppert, T. R. & Shadmehr, R. (2012) Evidence for Hyperbolic Temporal Discounting of Reward in Control of Movements. The Journal of Neuroscience; 32 (34): 11727-11736.

Daimond, P. & Köszegi, B. (2003) Quasi-hyperbolic Discounting and Retirement. Journal of Public Economics; 87: 1839-1872.

Laibson, D. (1996) Hyperbolic Discount Functions, Undersaving and Savings Policy. NBER Working Paper; 5635: 51.