Time preference: What is it?
Picture this: You've found a fantastic new app that lets you know when those hard-to-find items are in stock. It's not free, but the price looks like it's worth paying. You have one decision to make: Would you prefer to pay $100 for a year of service (an average of $8.33 per month) or $10/month?
Maybe you've had to make a decision like this (or many of them) in the recent past. I know I have. What comes to your mind when you are deciding which one to choose?
You want to know if you'll be using this service a year from now. If you think you will be, that $20 savings looks pretty good. But if you're not sure, why spend up to $90 that you don't have to spend?
Really, we make decisions like that all the time without being aware of it. Should I eat that cookie or stay on my diet? Should I increase the amount going into my retirement fund (or start a retirement fund, for many people), or should I treat myself to a well-deserved vacation this year?
We're not speaking hyperbolically here
Scientists have been studying this phenomenon for decades. They have concluded that our brains use a type of equation to determine how much weight to give to a reward based on the delay between the time to choose and the time of the expected reward. The equation is the same as the equation of a hyperbola. Hence they call this "hyperbolic discounting."If you're into math, the formula for hyperbolic discounting is V=A/(1+kD). V is the perceived value, A is the face value of the reward, and D is the delay. k describes the rate of discounting.
This phenomenon has been studied so thoroughly that it has been detected in eye movements and other actions in humans and primates.Haith, A. M., Reppert, T. R., & Shadmehr, R. (2012). Evidence for Hyperbolic Temporal Discounting of Reward in Control of Movements. Journal of Neuroscience, 32(34), 11727–11736. https://doi.org/10.1523/jneurosci.0424-12.2012 In other words, if my brain thinks there's something rewarding in my field of view it will direct my gaze there more readily if it anticipates a quick reward rather than a delayed one.
Don't take your hands off the wheel
Hyperbolic discounting is also known as time preference or present bias. Basically, it's an automatic evaluation in our brains of the cost/benefit ratio between present and future rewards. It's kind of a rule of thumb that automatically helps you decide whether something is worth it based on the likelihood that you'll get it. Because the longer the delay, the more chances there are that something will prevent you from getting the reward.
But as with any other automatic process, it works best if you supervise it. Think of a horse without a rider, a car without a driver, or a nuclear power plant without operators, and you get the idea. The same goes for the processes in our brains. We need to stay in charge, or we'll suffer the consequences.
Besides undersaving for retirement or trouble sticking to a diet, as mentioned above, there are other problems that arise when we don't keep our hands on the wheel. We live in a buy now, pay later economy. This is because it's much easier to rationalize a purchase that will bring rewards now, even though the merchant offering the deal knows they'll make more money from us by delaying the payment than they would otherwise.
Have you ever bought a product with a mail-in rebate? How can a company afford to offer a rebate that's so generous they're practically giving the product away? They know that many people who buy their product won't bother to main in the rebate coupon. That's because people are much more likely to do work for a future reward than for a past one. You've already received the benefit of using the product. Now you have to go to a lot of work to mail in a coupon that will result in a $3 check being mailed to you in three weeks? Your brain tells you it just isn't worth the effort. If it feels like your brain is in collusion with the merchant to swindle you, you're probably right.
What hope is there?
This graph shows the results of a study comparing the relative value of a reward worth $1000 offered to three age groups, by plotting the value that each participant assigned the reward after a specified delay. The y-axis (vertical) indicates dollar amounts and the x-axis indicates months of expected delay in receiving the promised reward.
Purple = 12-year-olds
Blue = 20-year-olds
Red = adults, median age 68
Here's an example showing how the graph works:
(The gray circle on the left shows an intersection where two age groups both considered $150 now to be as desirable as $1000 in 10 years.)
As we get older, we get wiser. At least, that's one conclusion that can be drawn from studies comparing the willingness of participants to wait for rewards, based on age. The above graph was generated from the results of a 1994 study on this subject.Green, L., Fry, A. F., & Myerson, J. (1994). Discounting of Delayed Rewards: A Life-Span Comparison. Psychological Science, 5(1), 33–36. doi:10.1111/j.1467-9280.1994.tb00610.x The results seem to indicate that older adults are more willing to wait for a reward than younger people are.
On the other hand, this may not always be the case. Another study noted, "Lower-income older adults discount rewards more steeply than upper-income older and younger adults."Eppinger, B., Nystrom, L. E., & Cohen, J. D. (2012). Reduced Sensitivity to Immediate Reward during Decision-Making in Older than Younger Adults. PLoS ONE, 7(5), e36953. https://doi.org/10.1371/journal.pone.0036953 What can we conclude? I surmise that the higher-income older adults may have achieved that status in part because they learned how to get control of their brain's reward system.
Science still needs to research this question more fully, but in the meantime, there are things you and I can do to stack the deck in our favor.
Have compassion for your future self
As I've already mentioned in another blog post, having a bright outlook for the future is a big help. Remember, the discounting curve is based on the diminishing likelihood that you'll be able to experience the awaited reward. If you think your future self will be similar to your present self, if you have a vivid image of your future life, think of your future self in positive terms, or even if you have a positive view of elderly people in general, you're more likely to value future rewards. This means you'll make more choices to enrich your future life.
While you're at it, you may as well sit down and write a nice card to your future self to attach to the gift you're giving yourself. Address it, "with love." And then write yourself a thank you card. After all, your future self will want to write one to you but the only way you'll be able to read it is if you write it now. By the way, in researching this article I learned a new word. The opposite of procrastination is preproperation, the act of doing something too soon. Who knew?
There are other tips in the other blog post that I won't repeat here. I suggest taking a closer look at a proven method that works better than the brain's built-in method. However, there's one more that I didn't go into detail about there so I'll mention it here:
Make a pre-commitment
You can raise the cost to your future self of not following through on your intention. Here are possible ways to do this:
- Find someone who already does what you are intending to do and make a promise to join them. If you back out, you'll let them down.Weigh this carefully against the value of your relationship with the person. Only do this if you are sure the pain of not following through will be worse than the pain of letting your friends down.
- Announce your intention publicly. The threat of public shame might be enough to keep you on track. (Again, weigh this carefully.)
- Use a "commitment device" to make it more painful to cop-out than it will be to follow through on your intention. Daniel Reeves, Cofounder of Beeminder, has collected a list of more than 40 ideas.
Personally, I think self-persuasion, a technique I describe in the blog post referred to above, is a better method than using commitment devices. After all, if I'm so sure that my future self will need to be threatened with something to follow through, why would I put myself through it? A good litmus test is, would I be willing to do this right now if I could?
Don't discount this information
Temporal discounting, by any name, tends to create a rift between our present and future selves. It's an automatic process that's good for some situations but bad for others. Learning how and when to take charge of this process can make us healthy, wealthy, and wise, whether or not we wake up early too.