Exploring Hyperbolic Discounting: Insights and Implications for Decision-Making

Introduction

Hyperbolic discounting is a behavioral economic concept that describes the tendency for individuals to favor smaller, immediate rewards over larger, delayed ones. This phenomenon contrasts with the traditional exponential discounting model, where individuals are presumed to evaluate future rewards consistently, leading to rational decision-making. The purpose of this report is to explore hyperbolic discounting, examining its implications for decision-making in various contexts, including personal finance, health behavior, and public policy. By understanding hyperbolic discounting, we can gain valuable insights into the cognitive biases that influence human behavior and develop strategies to mitigate their effects.

Main Body

Hyperbolic discounting posits that people value immediate rewards disproportionately more than future rewards, creating a time-inconsistent preference structure. This idea was popularized by behavioral economists such as George Ainslie and Richard Thaler, who illustrated how individuals often make choices that contradict their long-term interests. For ex