Hyperbolic discounting is a cognitive bias where individuals tend to prefer smaller, immediate rewards over larger, delayed rewards, even when the delay is not substantial. This creates inconsistencies in decision-making over time, leading to choices that may not align with long-term goals. It is a central concept in behavioral economics, illustrating how people's valuation of rewards can change based on their proximity in time.
For instance, people often prefer receiving $50 today instead of $100 in a month, but they might choose $100 in six months over $50 in five months. This preference reversal shows how hyperbolic discounting affects decision-making.
To overcome hyperbolic discounting, individuals can implement commitment devices or set specific goals with clear rewards for the future, helping to align immediate actions with long-term intentions.