Hyperbolic Discounting

Offer someone $100 today or $110 tomorrow; many choose today. Offer $100 in 30 days or $110 in 31 days; almost everyone waits the extra day. The time difference is identical — one day for 10% gain — but the choices differ. When “now” is involved, our patience collapses. This is hyperbolic discounting: the irrational overweighting of immediate rewards.

Standard economics assumes exponential discounting: we apply a constant discount rate across all time periods. But human psychology bends the curve at the near end. We’re relatively patient about the distant future, relatively impatient about right now. The present exerts a gravitational pull that warps consistent preference.

The consequences ripple through every long-term decision. Exercise postponed because rest feels good now. Savings depleted because consumption satisfies now. Projects abandoned because the next shiny thing appeals now. Each choice seems reasonable in the moment; the pattern only looks irrational from outside.

This creates dynamic inconsistency: your future self disagrees with your present self. Today you sincerely plan to start the diet Monday. Monday arrives and you sincerely postpone to next Monday. The plan was genuine; the follow-through fails because every Monday becomes “now” with its warping gravity. You keep making commitments your future selves will break.

Sophisticated agents use commitment devices to bind their future selves. Odysseus tied himself to the mast. Savings locked in retirement accounts. Deadlines announced publicly. Gyms that charge for missed sessions. The present self restricts the future self’s options, compensating for the known bias.

The deeper insight: your preferences aren’t unified across time. The you who plans and the you who executes are in tension. Treating yourself as a single consistent agent is a fiction that hyperbolic discounting exposes. Good strategy means designing structures where your present self can’t sabotage your future self’s goals.