Hyperbolic discounting
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
Hyperbolic discounting means people discount the future at a rate that falls over time. They are very impatient about delays close to today but fairly patient about the same delay far in the future. As a result, their preferences are inconsistent: a plan made for later is abandoned when "later" becomes "now". The idea comes from Richard Thaler's work (Nobel 2017).
Example
Many people take ₹100 today over ₹110 tomorrow. Yet they take ₹110 in 31 days over ₹100 in 30 days, though both choices involve waiting one day for ₹10 more. This explains under-saving for retirement and delayed loan repayment.
Don't confuse with
- Exponential discounting: the standard model, in which the discount rate stays constant, so preferences stay consistent over time.
- Present bias: the behaviour itself (overweighting rewards now). Hyperbolic discounting is the pattern of discount rates that produces it.
Related concepts
- Behavioural economics
- Bounded rationality
- Satisficing
- Heuristics
- Anchoring
- Availability heuristic
- Confirmation bias
- Overconfidence bias
- Prospect theory
- Loss aversion