–Behavioural pharmacologist Warren K. Bickel, et al.
Hyperbolic Discounting 101
Hyperbolic discounting is our inclination to choose immediate rewards over rewards that come later in the future, even when these immediate rewards are smaller. Finance is a good example, since high risk, high return short-term investments must be evaluated against long-term safer ones.
It was psychologist Richard Herrnstein who termed the bias “hyperbolic discounting” in 1961, after noticing that subjects in his studies tended to look at rewards in proportion not only to their rates and amounts, but also in accordance with their immediacy. This bias can be associated with “procrastination”, as, when we postpone or skip a task, we are essentially prioritizing immediate gratification from avoiding the task over the future reward from completing it.
Hyperbolic discounting is poisonous for your health…
Decisions that prioritize short-term gratification are often against our long-term well-being. Think of smoking: there is a quick rush of dopamine that is valued over future health. Addiction often plays a role in people’s decision to smoke. Indeed, nicotine itself has been linked to an undervaluation of long-term outcomes.
Many health care choices impose immediate costs to produce future benefits. This is true for routine preventative care or health insurance contracts as well as for more costly and invasive procedures such as the removal of certain organs or tissue to reduce cancer risk among high-risk patients. Much research has shown that, given their own values, people tend to invest too little in activities like the ones previously mentioned because they put too much weight on costs today and too little weight on future benefits.
Furthermore, some individuals are more subject to be prey to behavioural biases than others. Being these two kinds of individuals not easily detected by a health care system, unless it is an optimal theoretical one,the system as a whole needs to be designed to succeed on average over the population.
…or maybe not.
Hyperbolic discounting is associated with time inconsistent decisions, that is the tendency to make different choices about the same issue at different points in time. Unfortunately though, time inconsistency is not easily observable unless longitudinal analysis is performed.
A 2018 study has shown that in a baseline scenario, without time inconsistency, a calibrated reference American individual is predicted to live 4 years longer with hyperbolic discounting than she would with exponential discounting. This longevity gap actually increases to 14 years as unhealthy consumption is brought into the model, with individuals consuming about four times as much unhealthy goods with exponential discounting than with hyperbolic discounting. The reason behind this is that an exponential curve has a constant discount rate, while a hyperbolic discount curve has a higher discount rate in the near future and lower discount rate in the distant future. Therefore, hyperbolic-discounting individuals apply relatively low discount rates to utility experienced in old age and confine unhealthy consumption in order to live a long and healthy life. Moreover, future utility is also discounted with the mortality rate. In young age, when mortality is low, pure time preference motive dominates the survival motive and hyperbolic discounting implies that the discount rate declines with age. In old age, in contrast, the survival motive dominates and the discount rate rises with increasing age and mortality.
This study therefore implies that hyperbolic discounting could be bad for health if and only if it leads to time-inconsistent decisions and the revision of future plans by impatient current selves. However, more studies with longitudinal analysis are needed to confirm these findings.
How to reduce it
Given its mixed implication to health habits, it is still better to try and reduce hyperbolic discounting as much as possible. One way is “future focus priming”, that is being exposed to influential stimulus, such as words like “future,” “long-term” and “self-control” in order to trick individuals to think about long-term future actions on a regular basis. Another way is instead to portray your future self and interact with it to make decisions. Therefore, next time think twice before postponing your dental check!
Lee, R. (2008); “Lessons for Health Care from Behavioral Economics”; Bulletin on Ageing and Health; National Bureau of Economic Research; https://www.nber.org/bah/2008no4/lessons-health-care-behavioural-economics
Strulik, H. & Trimborn, T. (2018); “Hyperbolic discounting can be good
for your health”, cege Discussion Papers, No. 335, University of Göttingen, Center for European, Governance and Economic Development Research (cege), Götting
Liebman J. & Zeckhauser R. (2008); “Simple Humans, Complex Insurance, Subtle Subsidies”; NBER Working Paper No. 14330
“Why do we value immediate rewards more than long-term rewards?”; The decision lab”;https://thedecisionlab.com/biases/hyperbolic-discounting/