Definition. Hyperbolic discounting refers to the tendency for people to increasingly choose a smaller-sooner reward over a larger-later reward as the delay occurs sooner rather than later in time.
What is hyperbolic discounting in marketing?
Hyperbolic discounting is a psychological bias where people to prioritize immediate rewards and satisfaction over future rewards. It’s used in sales and marketing to encourage consumers to purchase based on the short-term reward, or instant gratification.
What is the difference between exponential discounting and hyperbolic discounting?
Whereas an exponential curve has a constant discount rate, a hyperbolic discount curve has a higher discount rate in the near future and lower discount rate in the distant future.
How do you solve hyperbolic discounting?
How to Manage Hyperbolic Discounting
- #1: LEARN: Build awareness of the concept. The first key to overcoming a cognitive bias is understanding it. …
- #2: SUBTRACT: Automate your choices. …
- #3: REWARD: Create short-term incentives. …
- #4: COMMIT: Use other commitment devices.
What is hyperbolic discounting bias?
Hyperbolic discounting is our inclination to choose immediate rewards over rewards that come later in the future, even when these immediate rewards are smaller.
What is a discount rate investopedia?
The discount rate is the interest rate charged to commercial banks and other financial institutions for short-term loans they take from the Federal Reserve Bank. The discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.
What is the discount factor in finance?
Discount Factor is a weighing factor that is most commonly used to find the present value of future cash flows and is calculated by adding the discount rate to one which is then raised to the negative power of a number of periods.