Cognitive Biases: Hyperbolic Discounting

Cognitive Biases: Hyperbolic Discounting


Hyperbolic discounting means your customers prefer the lower-sooner reward over the higher-later one. It means you have to modify your offer if you want them to pay more for something they will have to wait for.

Imagine I’m offering you to take one dollar today or two dollars tomorrow. Which option are you going for? Which option will most people choose? Would you be willing to wait? And what about the others? You might think that a reasonable human being with an average life expectancy would also choose the two dollars deal. However, studies show that the absolute majority of people go for a lower-yet-sooner reward.

This phenomenon is well known in the world of behavioral economics. It’s called the hyperbolic discounting bias. And I will show you how to use it on your customers.

Hyperbolic discounting in your life

Before we dive into business stuff, take a second to think of all the situations in which you fall for hyperbolic discounting and how it affects your life. You watch Netflix for a quick hit of dopamine instead of organizing the closet that’s been driving you insane for months. Or you drive out to KFC because you ran out of food in your fridge even though grocery shopping and meal-prepping would have been more consistent with your weight-loss plan.

Most of our human flaws, weaknesses, and procrastination have something to do with hyperbolic discounting. We make the mistake of getting carried away today and forgo future consequences. Despite what mindfulness coaches tell you, people do tend to prioritize living in the moment. Just not the way these coaches meant for them.

Okay, I’ve made you feel bad about yourself. But what implications does all this have for your businesses? Why did I make the bold claim that overcoming hyperbolic discounting might make your customers way eager to spend their money with you? Well, all of these ungodly things I’ve listed above, your customers do them. If you’re in the fast-food, alcohol or entertainment on-demand business, that’s excellent news to you. But if you’re selling organic cherries, life insurance, or online courses that take a year to complete, you begin to see the problem, don’t you?

Use It To Your Advantage

“Nudge” by Richard H. Thaler and Cass R. Sunstein
“Nudge” by Richard H. Thaler & Cass R. Sunstein

Fortunately, there are ways to use hyperbolic discounting to your advantage. Even if you’re running a business that doesn’t offer immediate results (think long-term goals like optimal health or mastery of a topic), you can trick your customers into making a buying decision more often. I’ve only used the t-word because you’re doing it for their good and they want you to do it. Clients need your help in making decisions that will benefit them today and in the long run. They want you to nudge them in the right direction (there’s a great book about it — check it out).

The nudge above should be packaged as a promise. My product will not only take care of you in the long run, it also gives you something positive right after the purchase. If you design and market that way, your chances of success go way up.

There are countless ways to tap into this philosophy, so get creative. Here are a few ideas to jump-start your brainstorming session:

  • You’re selling an in-depth course that makes your clients master chefs in a year? Tell them that it will turn them into a chocolate cake wizard in just four days.
  • Your organic food catering program promises shinier hair after six months? Run some tests to check if it lowers people’s blood sugar levels after only a week.
  • Your gym requires, well, consistent use to help create that bikini bod? Set up a precise body fat measuring machine so that your clients can track minimal progress every time they leave.

I hope you’ll come up with plenty of your ideas and notice your business growing. Just remember not to put it off!

Written by
Paul Skah