Pedro Arantesrose
ArticlesContactNow

Hyperbolic Discounting

This theory states that humans discount the value of a later reward, by the factor that increases with the length of the delay.
#economics
Zettelkasten, April 06, 2021 (changes)

Notes

  • The hyperbolic discounting theory states that humans discount the value of a later reward by the factor that increases with the length of the delay.

    • People tend to choose a smaller-sooner over a large-later reward as the delay occurs sooner than later.
  • It's a decision mental model because it can help you evaluate the reward between two choices at different times.

  • It's a system mental model because it enables you to understand your and others' choices.

  • It's mathematically described as:

g(D)=11+kDg(D) = \frac{1}{1 + kD}

where g(D)g(D) is the discount factor that multiples the reward's value, DD is the delay, and kk is the factor governing the degree of discounting.

  • It explains why humans prefer short-term to long-term rewards.

  • It reveals a tendency to make choices that are inconsistent over time.

    • We regret some decisions we made in the past, despite knowing the same information.

References

RecommendationsDo you want to see all posts instead?
System Mental Models
System mental models are models that are used to help you understand how a system works.
Zettelkasten, April 23, 2021
Decision Mental Models
Decision mental models are models that are used to make a decision.
Zettelkasten, April 22, 2021
From Reactive Planning Model to Natural Planning Model
Until some point, the project was manageable, but after some feature requests and bug reports, it became unfeasible. In addition, almost every bug fix or feature implementation broke other "uncorrelated" parts of the application. That slowed us down a lot because our client and his customers were using the software, and we had to rush to fix the new bugs (yes, we didn't have testing at that time).
Articles, June 16, 2021
Reading time: 5 minutes
Mental Models
Mental models are frameworks, worldviews, representations, or explanations of how something works. They're how we understand the world.
Zettelkasten, April 06, 2021
Winner's Curse
The winner's curse is a tendency in which the winner of a bid in an auction pays more than the item's intrinsic value or true worth.
Zettelkasten, August 22, 2021
Network Effect
Network effects occur when a network's value increases for users as more people begin using it.
Zettelkasten, August 19, 2021
Maslow's Hierarchy of Needs
It's a motivational theory in psychology comprising stages of human needs.
Zettelkasten, August 11, 2021

Newsletter

Every Tuesday, I publish my most recent readings and thoughts. Subscribe to my newsletter if you want to follow topics about #startups, #mental-models, #cryptocurrencies, and more. You can also check my past issues on Revue.

By subscribing, you agree with Revue’s Terms and Privacy Policy