Imagine for a moment, you’ve been presented with the option of receiving a single $1 million payment, or receiving $250,000 each year for the rest of your life. Most of us scouring the internet can reasonably expect to live much longer than four years, making the yearly payout the better option over the long-term. Ah, but that shiny round number – one million dollars!
This is a struggle as old as humanity. The Ancient Greeks even had a word to describe it – akrasia -the struggle between knowing what to do in principle, but lacking the self-control to practice it. The word literally translates to “weakness of will.” This Greek term, akrasia, is helpful in discussions on addiction, where short term rewards can seriously undermine our health. In addiction, furor for quick relief outweighs the long-term concept of stability, eroding what is left of a foundation. This happens on a smaller scale, too, as we tend to place more value on staying up to work an extra hour or binge a few more episodes on Netflix than on the long-term mental and physical benefits of being well-rested or physically fit. It’s difficult for us to think about sleep, exercise, or addiction in such stark terms because we experience time differently. It’s easy to make a quick decision in the moment, because we won’t see the consequences of those decisions for years. This concept also applies to economics, where it is called “hyperbolic discounting”.
Hyperbolic discounting is a mental model stating that, given two similar rewards, we prefer the one which arrives sooner. We “discount” the reward that arrives later. In creating temporary preferences for smaller, more immediate rewards over larger, later ones, it’s easy to see why so many unhealthy habits and choices are made. It also helps explain why so many people underestimate the value of compounding.
Not limited to economics and late-night binges, this problematic thinking is evident at every level of society. Most of the major problems we face as a national and global population can be traced to short-term thinking. American credit card debts, our ongoing health crises of diabetes, heart disease, and obesity have roots here. Global climate change, food shortages, and lack of medical care could all be drastically improved by adopting a decades-long view of long-term security, the environment, and our own bodies. Governments and politicians routinely prize immediate political power over the long-term success and stability of the people they represent or nations they rule. In the business world, this is the company focused on chasing quarterly profits, but not looking or planning for the long-term future of the company. Every one of these circumstances have been exacerbated by our human tendency to value short term rewards over long term value.
In 1979, Daniel Kahneman and Amos Tversky presented their prospect theory, describing how people choose between different options and estimate the perceived likelihood of each option. “Choices among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty. This tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains and to risk seeking in choices involving sure losses.” This gives a scientific foundation for the hyperbolic discounting model; we value certainty over probability. The researchers continue, “ In addition, people generally discard components that are shared by all prospects under consideration. This tendency, called the isolation effect, leads to inconsistent preferences when the same choice is presented in different forms.” Humans don’t make decisions based on pure reason, but using emotional factors, too.
We can avoid making this error using a technique called “future focus priming.” When we remove immediacy from the question, we seem to make better decisions, as a 2016 study concluded. The participants were randomly assigned to groups primed to either focus on the future, focus on immediate rewards, or given no particular time frame to focus on. The group which focused on the future showed significantly lower discounting than the other two groups. Simply put, when faced with a choice between similar short and long-term rewards, think about which choice “Future You,” the person you want to be, would make. What kinds of problems do you want to deal with in twenty years?
The research team even concluded that if we could begin communicating the idea of future focusing throughout society, we can create massive change in the long-term health of our communities and population overall. They wrote, “The range of influence of steep discounting on risky health behaviors is so large that interventions that could positively affect the valuation of long-term rewards, even with minimal effect sizes, could potentially have a significant impact on clinical approaches and population health.”
Hyperbolic discounting is the irrational choice to choose short-term reward over longer term pleasure or even security. We can avoid this trap of thinking by focusing on the outcomes we want to experience in the future, and making decisions based on those ideals.
