Hyperbolic Discounting

What is it ?

Hyperbolic discounting is a person’s desire for an immediate reward rather than a higher-value, delayed reward.

If you were offered $50 now or $100 in a year, you’d likely take the $50 now. But what about $50 in five years or $100 in six years? There is only an added delay, but now it feels just as natural to wait for the $100.

Given the choice between two rewards, research has demonstrated that people tend to favour the reward that comes sooner rather than later, discounting the value of the later reward.

However, there is an exponential decay factor in our willingness to choose something now. As the example above around $50 versus $100 shows, as time passes, our desire for relative immediacy diminishes substantially over time.

How can I use it in my favour?

Integrate the knowledge that people tend to prefer more immediate payoffs than a delayed reward into your marketing campaigns – Consider the value of immediacy / convenience into a product or service offering, over offering a marginally cheaper alternative at a significantly later point in time.

Hyperbolic discounting gives you license to raise your price when you delay payment – When you offer to postpone payment, the price of the item becomes less relevant to the buyer.