Hyperbolic Discounting is a behavioral economic theory that describes how people value rewards and outcomes over time. Unlike the traditional exponential discounting model, which assumes that the value of future rewards decreases steadily over time, hyperbolic discounting suggests that individuals tend to prefer smaller, more immediate rewards over larger, delayed ones in a non-linear fashion. This leads to a preference reversal, where people may choose a smaller reward now over a larger reward later, but might later regret this choice as the delayed reward becomes more appealing as the time to receive it decreases.
Mathematically, hyperbolic discounting can be represented by the formula:
where is the present value of a reward at time , is the reward's value, and is a discount rate. This model helps to explain why individuals often struggle with self-control, leading to procrastination and impulsive decision-making.
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