Skip to main content

Hyperbolic Discounting and You

By
What economics can teach us about procrastination. 
You slouch back in your chair, scrolling aimlessly through your Facebook newsfeed. Another fascinating Buzzfeed post screams for your attention, “32 Pictures That Will Give You Intense Elementary School Flashbacks.” There’s an important exam in two weeks. But you can study for that tomorrow. For the tenth day in a row, you promise yourself that tomorrow won’t be as unproductive as today. But of course, 13 days later, you realize that you’ve done almost nothing for the exam that’s now a night away. In a panicky burst of productivity, you cram in as much review as possible. 

Why do we procrastinate? Even as we watch one TV show episode after another, we know that it is far more beneficial to work on that essay due next week—yet we can’t gather the motivation to do anything. A branch of economics known as behavioral economics may have an explanation for this conundrum, it’s called hyperbolic discounting. 

Although the term sounds frightfully esoteric, hyperbolic discounting is something we all know very well, probably too well. It is the very human tendency to prefer an immediate payoff over a more significant reward in the future, a tendency that grows as the payoffs are closer to the present. 

For example, if given the choice between receiving $900 straight away or $1000 a week from now, most will choose the $900. However, if the option is between $900 in fifty-two weeks or $1000 in fifty-three weeks, a majority of people will wait the fifty-three weeks: if I can wait a year, I can probably wait a year and a week.   

This decision seems irrational. After all, the difference in time and value is identical in both instances. However, due to our inclination to hyperbolically discount, we see the $900 this week as being much more valuable than $1000 next week, with this preference disappearing when the rewards are placed into the future. 

Image: ASAPScience

That explains why chatting on FB is far more satisfying than studying to achieve the greater reward of doing well on an exam—until the night before the exam, when the temporal proximity to the assessment dramatically increases the value of a good grade.   

This is also how we can convince ourselves that, during our next vacation, instead of playing video games we will be able to motivate ourselves. Yet, when the vacation does roll around, this conviction suddenly fails us, and we decide to seek the instant gratification that comes with playing games versus the delayed satisfaction from being productive. Essentially, our expectations for the future are excessively optimistic.   

It therefore makes sense that hyperbolic discounting has important implications in health and personal finance as well. If faced with an immediate choice at lunch, most of us would rather eat a Big Mac than a nutritious salad, but we tell ourselves that we will be wiser next time (of course, this wisdom generally never comes). People also rack up large debts buying desirable goods on credit, dismissing any thought of how the debt will be managed in the future. 

Overvaluing the present at the expense of the future is sensible from an evolutionary standpoint. Our ancestors had to be concerned with day to day, moment by moment survival: the future is irrelevant if you get killed by a wild animal in the present. The average human no longer needs to worry about such things; however, seemingly distant concerns are now quite significant. So how do we defeat the menace of procrastination? 

Because we prefer frequent small rewards over a distant, larger reward, an effective way to work is to give yourself treats in intervals. This could be, for instance, ten minutes on Facebook for every thirty minutes you work. 

Self-imposed deadlines, particularly those that carry a penalty if they are missed, are another powerful way of keeping on track. As the deadline approaches, your mind will see it as more valuable to work than to be distracted and face the consequences of missing the deadline. 

Finally, it is most effective to place barriers between yourself and the things you distract yourself with. Although your present self may resolve to choose productivity over procrastination, your future self cannot be trusted to choose long-term results over instant joy. Programs like Freedom or Self-Control, which block internet connection or certain websites, allow you to prevent your future self from leading you astray.  
Economics is more than just an abstract subject dealing with numbers and money, economics also has the power to explain everyday human behavior. So, armed with the knowledge of hyperbolic discounting, go forth and be productive.    

Comments

Post a Comment

Popular posts from this blog

On Myanmar

By
This is adapted from a paper I wrote for my Comparative Politics class at Harvard . A Friendless People Thousands have been killed. Hundreds of thousands have fled. They are a people without a home, much less a state. Such is the plight of the Rohingya, whom a UN spokesperson once called the most friendless people in the world. The United Nations High Commissioner for Human Rights has called the situation a “textbook example of ethnic cleansing” (“UN”). This latest wave of state-sponsored violence follows a series of attacks by militants—a small insurgent group, the Arakan Rohingya Salvation Army (ARSA)—in August on Myanmarese military outposts. The brutal military crackdown is ostensibly targeted at insurgents. Yet, it is unmistakably civilians who are bearing the brunt of the violence, with the UN High Commissioner calling the response “clearly disproportionate” and “without regard for basic principles of international law” (“UN”). The approach of ethnic institutionalism has
Post a Comment
Read more

The Tax Reform India Needs

By
Image: Tizi A version of this article also appeared in the South China Morning Post's Young Post on Thursday, May 5.  http://yp.scmp.com/news/features/article/103398/india%E2%80%99s-economy-taking-right-steps-goods-and-service-tax India’s current prime minister, Narendra Modi, was elected in 2014 on his economic credentials and the promise that he would bring to the nation the same prosperity he brought, as chief minister, to his home state of Gujarat.  The keystone of Modi’s economic policy is a nationwide goods-and-service tax (GST), intended to streamline the myriad state and central-government levies currently encumbering business in the country.   Under the prevailing tax regime, multiple layers of tax are imposed on the same good, and interstate trade is complicated by varying tax rates between states. Transporting goods across state borders can entail long waiting times to resolve tax matters, and the plethora of obscure charges leaves ample room for co
1 comment
Read more

Where Lurks the Next Crisis?

By
Photo: SCMP Optimism flows freely through the markets today. Asset prices are at record highs: investors are happier than ever to throw money at barely profitable technology companies, debt issuances from dubious companies and volatile governments, and anything blockchain related—from Bitcoin to Ethereum to Insanecoin, which does actually exist.     Most observers think that the coin mania is a bubble waiting to burst. But bears have been calling the whole market a bubble for a while, predicting an end to the years-long economic recovery and stock market boom. The old joke goes that economists have called seven of the last two recessions. It still rings true. Doomsayers have been convinced of a market crash since the post-recession recovery had barely gotten on its legs. But with things as they are today, are we on a path toward crisis?   I will not engage in the perilous business of trying to predict when the next economic downturn or market tumble will occur. Any such p
Post a Comment
Read more