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temporal-discounting

(ILLUSTRATION: DENIS CARRIER)

Why We Prefer Smaller Rewards Today Over Larger Rewards Tomorrow

• November 14, 2013 • 10:00 AM

(ILLUSTRATION: DENIS CARRIER)

There’s a name for that.

You do it every time you bust your diet by scarfing a donut, puff “just one last cigarette” before quitting, or watch a dancing-penguin video instead of getting to work. You are performing the self-deluding mental bookkeeping known as temporal discounting.

The further away in time the choice between rewards is, the more sensibly we choose.

The term refers to our tendency to prefer a smaller reward sooner over a larger reward later. Economists, psychologists, and others have run dozens of experiments in recent decades to see how changing variables, like the size of the reward and length of time before we get it, changes our behavior. Their work has helped explain why certain credit-card company marketing techniques are so successful at getting us to pile up debt, why we procrastinate at the office, and why we don’t save enough for retirement, among other things.

One fairly consistent finding: The further away in time the choice between rewards is, the more sensibly we choose. Researchers have found that the graph of how much we discount future rewards over time follows the pattern of a hyperbola; hence, this particular phenomenon is called “hyperbolic discounting.”

“A worker prefers a 20-minute break in 101 days, rather than a 15-minute break in 100 days,” writes MIT economics professor George-Marios Angeletos. “But … the same person prefers a 15-minute break right now, rather than a 20-minute break tomorrow.”

Logical? Not a bit. But who cares about logic when that glazed donut is calling?

Pacific Standard Staff
Pacific Standard grapples with the nation’s biggest issues—with a focus on economics, society and justice, education, and the environment—by paying particular interest to what shapes human behavior.

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