·Psychology & Behavior
Section 1
The Core Idea
We discount future rewards more than exponential discounting predicts. $100 today vs $110 tomorrow — we take $100. $100 in a year vs $110 in a year and a day — we take $110. The inconsistency: our preference reverses based on when the choice is framed. Same $10. Same one-day gap. Completely different choice. That reversal is hyperbolic discounting, one of the most replicated findings in behavioral economics.
The standard economic model says rational agents discount future rewards at a constant rate. Exponential discounting. Consistent, predictable. Humans don't do this. Richard Herrnstein first documented the pattern in pigeons in the 1960s; George Ainslie extended it to human decision-making in the 1970s. The discount function isn't exponential — it's hyperbolic. People discount steeply for near-term delays and gradually for far-term ones. The result is preference reversal: you make one choice when the reward is distant and a contradictory choice when the reward gets close. Future-you is rational. Present-you is not. And present-you always wins.
Addiction, procrastination, and unsustainable spending all stem from hyperbolic discounting. Amazon Prime's annual fee exploits this — pay once, forget the cost. The single present-moment payment is framed as "less than $15/month," keeping it on the steep part of the curve where it feels trivial; the benefits deliver value continuously across the flat part. Netflix's monthly subscription: $15 feels trivial today; $180/year would trigger deliberation. The monthly frame keeps the cost on the steep part of the discount curve where it feels small. The annual frame would move it to the flat part where rational evaluation would ask whether the service is worth the total. Same service, same price, different framing — and the framing determines whether the brain treats the cost as negligible or worthy of scrutiny.
Subscription free trials exploit the same curve. The value of "free for 30 days" is processed at present-you's steep discount rate — the free trial feels almost infinitely valuable because it's now. The cost of "$14.99/month after the trial" is processed at future-you's gentle discount rate — the payment feels trivially small because it's later. The conversion rate from free trial to paid subscription runs 50-70% for well-designed products. Not because users rationally evaluate the product during the trial. Because cancelling requires an action from future-you, and future-you's costs are hyperbolically discounted into near-irrelevance by present-you's decision to sign up.
The commercial exploitation of this inconsistency is a multi-trillion-dollar industry. Buy-now-pay-later services are hyperbolic discounting monetised. The consumer wants the product now (steep near-term valuation) and discounts the future payments hyperbolically (they feel abstract, distant, manageable). Credit cards operate on the same mechanism: the swipe is present and painless, the statement is future and discounted.
