No. 22 Hyperbolic Discounting

Hyperbolic discounting is a cognitive bias, where people choose smaller, immediate rewards rather than larger, later rewards

In economics, hyperbolic discounting is a time-inconsistent model of delay discounting. It is one of the cornerstones of behavioral economics.

Hyperbolic discounting is a cognitive bias, where people choose smaller, immediate rewards rather than larger, later rewards — and this occurs more when the delay is closer to the present than the future.

Researchers often run the following experiment to prove hyperbolic discounting. Imagine you’re given 2 choices. Get a £100 today or £120 in a week. Most participants choose £100 today.

But when the same question is asked with the same 1 week interval, but a year in the future, participants largely choose the bigger reward.

Simply put, shoppers prefer immediate rewards over delayed gratification.

  1. Have it now – If you run any sort of free gift or reward scheme for you brand and if the reward is instant, shout that from the trees.
  2. Rungs up the ladder – You can run schemes where shoppers are rewarded over time (think coffee cup stamps and a free cup after so many). These work better if you give shoppers a couple of free stamps to start them off, then they are proven to be more likely to continue the journey to the end of the process.
  3. Fine-tuned promotions – Recognise that you can give away less in terms of added value if shoppers can ‘cash in’ now. And that longer-term offers may need to be bigger, but not every shopper will get to the gold at the end of the rainbow.

Acknowledging that hyperbolic discounting exists and evaluating trade-offs between now and the future will help you do the right thing for your brand.

About Phillip Adcock

My name is Phillip Adcock: I have more than 30 years of human behavioural research and analysis, and have developed a unique ability to identify what it is that makes people psychologically and physiologically 'tick'.

Would you like to know more about how shoppers and consumers think? Download my FREE guide now. Alternatively, check out www.adcocksolutions.com, where there are more FREE downloads available there. Or why not simply email me with what's on your mind?

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Phillip Adcock
Psychology & Behaviour
Change Consultant

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