By Neil Patel

You may not know what hyperbolic discounting is, but it has vast ramifications on society as a whole. Additionally, a lot of people do not use the power of hyperbolic discounting in conversion optimization.

What Is Hyperbolic Discounting?

Put simply, hyperbolic discounting happens when people would rather receive $5 right now than $10 later. That’s it. People value the immediacy of time over the higher value of money.

Expressed another way, hyperbolic discounting is a person’s desire for an immediate reward rather than a higher-value, delayed reward.

You may be confused why someone would not choose the delayed reward if it means a greater benefit.

Here’s the thing: hyperbolic discounting is a cognitive bias, meaning that it is an ingrained mental snafu that defies logic and common sense. When hyperbolic discounting is framed differently, it has incredible power.

The power of hyperbolic discounting adjusts based on the time involved. If you have to wait to receive both rewards you become more likely to want the reward with the greatest benefit.

For example, if you had to choose between $50 now or $100 in 6 months, you’re most likely going to take the $50 today. However, if you are offered $50 in nine years or $100 in a year, you are more likely to choose the $100.

The pattern follows a hyperbola. Once a certain amount of time has passed, people begin to choose the option with the greater value again. For example, most will opt to take $100 in ten years over $50 in nine years.

That’s where the hyperbola part of hyperbolic discounting comes in. A hyperbolic curve displays the effect of hyperbolic discounting, in contrast to an exponential curve.

This is an exponential curve:

This is a hyperbolic curve:

Hyperbolically, the discount factor diminishes based on the amount of time that elapses.

How Hyperbolic Discounting Works in the Brain

Hyperbolic discounting isn’t some nifty gimmick that sometimes works and sometimes doesn’t. Our brains are programmed to be drawn to the tug of hyperbolic discounting.

Although we can’t avoid the feelings that pop up as a result of hyperbolic discounting, we can combat it by recognizing when it’s happening and understanding how to proceed.

A spate of scholarly studies have confirmed the validity of hyperbolic discounting.

Research published in the Journal of Neuroscience discovered the brain makes discounting judgments reflexively and automatically.

We aren’t thinking through whether we want more now or less later. We inherently want to get the benefit as quickly …read more

Source:: Kiss Metrics Blog