Notes
-
This theory states that humans discount the value of a later reward by some factor that increases with the delay's length.
- 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 the equation below, where is the discount factor that multiples the reward's value, is the delay, and 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.