What is present bias?
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.
In economics, present bias is a time-inconsistent model of delay discounting. It is one of the cornerstones of behavioural economics.
Present bias in action
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.
Simply put, shoppers prefer immediate rewards over delayed gratification.
How can you use present bias?
There are multiple ways you can play on immediate reward for your shoppers and consumers. Here are my top 3 suggestions:
- Have it now – if you run any sort of free gift or reward scheme for you brand, make the reward is instant and 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). 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.
Present Bias is no.31 in a series of 36 cognitive bias insights. Why not check out no.32 - Pseudocertainty?