Pedro Arantesrose
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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 (updated at April 10, 2021)

Notes

  • This theory states that humans discount the value of a later reward, by the factor that increases with the length of the delay.

  • It's mathematically described as:

where is the discount factor that multiples the reward's value, is the delay, and is the factor governing the degree of discounting.

  • This is the reason that 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

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