Hyperbolic Discounting: Understanding Value Perception Over Time

Introduction Hyperbolic discounting is a behavioral economic theory that describes how individuals perceive the value of rewards over time. Unlike traditional economic models, which suggest that people discount future rewards at a constant rate, hyperbolic discounting posits that individuals exhibit a decreasing rate of time preference, leading to a preference for immediate rewards over delayed ones. This phenomenon has significant implications for decision-making in various contexts, including personal finance, health behaviors, and environmental conservation. The purpose of this report is to explore the concept of hyperbolic discounting, its implications on value perception, and its relevance in real-world decision-making processes.

The Concept of Hyperbolic Discounting Hyperbolic discounting is grounded in the observation that individuals often make choices that reflect a present bias. This means that when faced with a choice between a smaller, immediate reward and a larger, delayed reward, people tend to favor the immediate reward, even when waiting would yield a better outcome. This preference can be represented mathematically by the hyperbolic discounting function, which in