Present bias is the tendency to rather settle for a smaller present reward than to wait for a larger future reward, in a trade-off situation. It describes the trend of overvaluing immediate rewards, while putting less worth in long-term consequences.
In economics, present bias is a time-inconsistent model of delay discounting. It is one of the cornerstones of behavioral economics.
Present bias is a cognitive tendency, 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 present bias. 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.
- 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.
- 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.
- 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 present bias exists and evaluating trade-offs between now and the future will help you do the right thing for your brand.