hyperbolic discounting (this is clearly real, but I’m not sure I would not call it a bias)
“Discounting” in general makes great sense. The reason that’s on the bias list is because of the word “hyperbolic.”
Discounting means multiplying future values by some function F(t), which is generally in [0,1]. There are three simple choices: the first is no discounting, just setting it always equal to one (rarely recommended); exponential discounting, in which F(t)=exp(r t); and hyperbolic discounting, in which F(t)=1/(1+k t). Hyperbolic discounting appears to be what people natively use, but exponential discounting is what economists recommend because it’s consistent in time. If I offer you a choice between A after x time units and B after x+y time units, under both no and exponential discounting the answer does not depend on x. (In the no discounting case, it doesn’t depend on y either.) With hyperbolic discounting, it does depend on x- with the particularly bothersome result that a hyperbolic discounter’s preferences might switch from B to A as x decreases. This can lead to self-thwarting behavior: if Bob2012 chooses $100 in six years over $50 in five years, he goes against the wishes of Bob2017, who would choose $50 now over $100 in a year.
“Discounting” in general makes great sense. The reason that’s on the bias list is because of the word “hyperbolic.”
Discounting means multiplying future values by some function F(t), which is generally in [0,1]. There are three simple choices: the first is no discounting, just setting it always equal to one (rarely recommended); exponential discounting, in which F(t)=exp(r t); and hyperbolic discounting, in which F(t)=1/(1+k t). Hyperbolic discounting appears to be what people natively use, but exponential discounting is what economists recommend because it’s consistent in time. If I offer you a choice between A after x time units and B after x+y time units, under both no and exponential discounting the answer does not depend on x. (In the no discounting case, it doesn’t depend on y either.) With hyperbolic discounting, it does depend on x- with the particularly bothersome result that a hyperbolic discounter’s preferences might switch from B to A as x decreases. This can lead to self-thwarting behavior: if Bob2012 chooses $100 in six years over $50 in five years, he goes against the wishes of Bob2017, who would choose $50 now over $100 in a year.
As I understand it, hyperbolic discounting appears to be what WEIRDs use. Are there replicated studies on other groups?
It’s very well established in pigeons and rats. eg http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2648524/
Aha, thank you!
I have not investigated that. I would expect that hyperbolic discounting is common, since it looks way easier to calculate.
Ah, thanks, I should have been more diligent. Updated the post.