Hyperbolic Discounting
Why we choose $100 today over $200 tomorrow. The psychological tendency to irrationally prefer smaller, immediate rewards over larger, delayed rewards.
The Lure of "Now"
Given the choice between $100 today and $120 next month, most people choose the $100 today. Given the choice between $100 in 12 months and $120 in 13 months, most people choose the $120.
Rationally, you should just compare the annualized interest rate. But psychologically, time is inconsistent. We apply a huge discount rate to the immediate future, but a rational discount rate to the distant future. This is Hyperbolic Discounting.
Why We Fail at Goals
This bias explains why New Year's resolutions fail.
- Planning Self (The 12-months view): "I want to be fit. I will eat salad every day."
- Acting Self (The Now view): "This pizza is here right now. The health benefit is months away. The pizza wins."
We are effectively two different people: one who plans for the future and one who lives in the present. The present self usually wins because the reward is immediate.
Overcoming Present Bias
You cannot rely on willpower alone. You must change the structure.
- Commitment Devices: Lock your future self in. Pay for a personal trainer in advance (sunk cost). Throw away the junk food (remove the option).
- Make the Future Now: Visualize the future reward vividly. Or, make the pain of failure immediate (e.g., if I don't go to the gym, I must burn a $100 bill).
- Delay Gratification: Even a brief mandatory delay (e.g., "I can have the cookie, but I must wait 10 minutes") significantly reduces the emotional pull of the immediate reward.