Hyperbolic Discounting

Image: icyte.com

It is the tendency for people to prefer a smaller, immediate payoff over a larger, delayed payoff.  Would you rather have me give you $20 right now or $100 a year from now?  Most people would choose the $20 today.   Multiple studies show this.  On a larger scale, hyperbolic discounting is what accounts for lottery winners taking a fraction of their prize in a lump sum instead of getting the whole thing paid in annuities over time.  Ever see those “I need cash now” commercials?  Companies make a good deal of money from this.


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