Latest / Behavioral Economics with Fexingo: Decision Making, Bias, and How People Really Spend / Hyperbolic Discounting Why You Choose Now Over Later
Transcript
- Lucas: So here's a question — would you rather have fifty dollars right now, or a hundred dollars in a year? Luna: Fifty now. Easy. A year is a long time. Lucas: Most people say the same thing. And rationally, a hundred dollars is double. But your brain discounts the future value — not linearly, but hyperbolically. That means the closer you get to the present, the steeper the discount. Luna: So it's not just impatience. It's a systematic bias. Lucas: Exactly. And if today's episode made something click for you about your own choices, the way we keep this show ad-free is through listener support — buy me a coffee dot com slash fexingo. No pressure, just if it's useful. Luna: Yeah, that's the whole model. Keeps it clean. Lucas: Right. So back to the bias. Hyperbolic discounting was formally modeled by psychologists David Laibson and George Loewenstein in the 1990s. It explains why we plan to save for retirement in January, but by February we're buying a new TV. Luna: Present bias. The future self always gets the short end. Lucas: And it's not just about money. Think about dieting. You plan to eat healthy all week, but when the dessert cart comes, the immediate reward overpowers the long-term goal. Luna: So what's the classic experiment that shows this? Lucas: The marshmallow test. Walter Mischel at Stanford in the late 1960s. He gave four-year-olds a marshmallow and said, 'You can eat this now, or wait fifteen minutes and get two.' The kids who waited tended to have better life outcomes decades later — higher SAT scores, lower BMI. Luna: But isn't there a debate about whether that's really about self-control or just household stability? Lucas: Right. Replications in the 2010s showed that when you control for socioeconomic status, the predictive power drops a lot. But the core behavioral pattern still holds: kids who could delay gratification did better on average. And the bias itself — hyperbolic discounting — is robust across cultures. Luna: So if we know about it, can we actually override it? Lucas: Partially. One tool is the commitment device. You lock yourself into a future choice before temptation strikes. Classic example: Christmas savings clubs where you can't withdraw until December. Or apps that let you set a savings goal and penalize you if you break it. Luna: Like StickK. You put money on the line, and if you fail, it goes to a charity you hate. Lucas: Exactly. That's a pre-commitment contract. And it works because it changes the immediate incentive. Suddenly, not going to the gym costs you twenty bucks right now, not just a vague future regret. Luna: So you're basically hacking your own hyperbolic discounting curve. Lucas: Yes. Another strategy is to make the future reward more vivid. If you imagine your retirement self in detail — where they live, what they do — you reduce the psychological distance. Luna: There's a study by Hal Hershfield at UCLA where people who saw age-progressed avatars of themselves saved more for retirement. Lucas: Right. Because the future self felt real. And when the future self feels real, the discount rate drops. Luna: But what about in the moment? When you're staring at the dessert cart? Lucas: There's a technique called 'if-then' planning. If I see dessert, then I'll order coffee. It offloads the decision to a rule, so you don't have to re-evaluate each time. Luna: So you're pre-defeating the bias before it kicks in. Lucas: Exactly. And the key insight is that willpower is a limited resource. So the smart approach isn't to rely on it — it's to change your environment so you don't need it. Luna: Like not keeping junk food in the house. Lucas: Right. Or automating your savings. If money goes into a 401k before you ever see it, you never have to decide not to spend it. Luna: So hyperbolic discounting is built into our wiring, but we can design around it. Lucas: Exactly. The brain evolved for a world of immediate threats and short-term rewards. But we live in a world of long-term goals. So we need to build scaffolding. Luna: One thing I find interesting is how this plays into addiction. The immediate hit of a substance overwhelms any future health concern. Lucas: That's a stark example. And it's why many addiction treatments use commitment devices — like naltrexone implants that block the effect, or contingency management where you get vouchers for clean drug tests. Luna: So it's not about moral failing. It's about a predictable cognitive bias. Lucas: Exactly. And understanding that can reduce shame and increase effectiveness of interventions. Luna: So what's the takeaway for someone listening right now? Lucas: Pick one area where your present self keeps sabotaging your future self. Maybe it's saving, maybe it's eating, maybe it's procrastinating on a project. Then design one commitment device for it. Automate a transfer. Use an app. Tell a friend who will hold you accountable. Luna: And if you do, you might just find that the future you — a year from now — actually gets that hundred dollars. Lucas: Exactly. Because your brain can be tricked, but you can also be the trickster.