Hyperbolic discounting

Hyperbolic discounting

It's a cognitive bias, where people choose smaller, immediate rewards rather than larger, later rewards.

For example, if there’s an important deadline looming (the pressure is on, all signs are pointing to you getting it done), yet you put it off, turn on Netflix, and fantasize about how you’re going to crush it tomorrow, you’ve fallen victim to hyperbolic discounting.

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Cognitive biases

They are mental shortcuts we use, which generally help us make quick decisions, but don’t always work out for the best. 

Our brains were never wired to be truly rational because there is way too much information in the world for us to process. We evolved instead to make decisions quickly.

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  • Empathize with your future self: You put things off to future you because it’s easy to assume that future you has boundless energy and motivation. Unfortunately, that perfect vision is not real.
  • Pre-commitment: You increase your chance of success by removing a temptation future you may try and weasel out of.
  • Break down big goals into small manageable chunks: Big goals take a long time to achieve and so are susceptible to the far-off reward curse of hyperbolic discounting.

Is the tendency to over-value the effect of small quantitative differences when comparing options.

For example: we think a 1,200 square foot home will make us happier than a 1,000 square foot home. We think earning $70,000 a year will make us happier than earning $60,000 a year.

Mostly encountered in when we are in the situations of buying something new.

Time inconsistency

When we think about the future we want to make choices that lead to long-term benefits (“Yes, I'll save more!”), but when we think about today, we want to make choices that lead to short-term. immediate benefits (“I'll spend it right now.”).

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