Hyperbolic discounting

Via coglode.com/gems/   Source

“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? We’ve only added a delay, but now it feels just as natural to wait for the $100.

Given two similar rewards, we humans have a preference for one that arrives sooner rather than later. More interestingly, we tend to discount the value of the later reward by an amount that increases with the length of the delay. …

Takeaways for decision-makers

Consider the value of immediacy / convenience into a product / service offering, over offering a marginally cheaper alternative at a significantly later point in time.

Offer a premium service that prioritises delivery of that good or service over the expected norm. If it’s immediate enough, there will be demand for it.

Be aware of the fact that there’s an exponential decay factor in our willingness to choose something now. As the main example above around £50 versus £100 shows, as time passes, our desire for relative immediacy diminishes substantially over time.”


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