Time Discounting and Present Bias¶

Why It Matters¶

Present bias explains why people make plans they don't follow, why they know what they should do but don't do it, and why commitment devices work. The same person who plans to save more "next month" never actually does it - because next month becomes this month.

The Key Move¶

Ask: how much is a future outcome discounted relative to the same outcome now? Is the discounting consistent over time (exponential) or does it shift (hyperbolic)? If hyperbolic, expect self-control problems and value for commitment devices.

Classic Application¶

Saving behavior. Exponential discounters have consistent plans. Hyperbolic discounters always plan to save "starting next month" - and next month never comes because it becomes the present, and present costs loom large.

Surprising Application¶

Addiction and health behavior. Present bias makes immediate rewards overwhelming relative to future costs. The smoker knows long-term costs but discounts them heavily. This isn't irrationality - it's a predictable consequence of hyperbolic discounting. Commitment devices (not buying cigarettes) work better than willpower.

Failure Modes¶

• Assuming exponential discounting when hyperbolic applies
• Ignoring that discount rates differ across domains - people discount health differently than money
• Treating all future-discounting as bias to be corrected - some discounting is appropriate
• Relying on willpower instead of commitment devices
• Missing that present bias can sometimes be adaptive

Go Deeper¶

Ainslie's "Picoeconomics." Laibson's work on hyperbolic discounting. Thaler on self-control.