Hyperbolic Discounting: Why We Choose One Marshmallow Now Instead of Two Later

Given the choice between 100 dollars today and 120 dollars next week most people will take the 100 dollars today. Given the choice between 100 dollars in a year and 120 dollars in a year and one week most people will wait the extra week for the 120 dollars. This makes no rational sense. In both cases the difference is exactly one week of waiting for a 20 dollar return. The math is identical. But our behavior flips.

This is Hyperbolic Discounting. We undervalue rewards that are far in the future but we hyper value rewards that are immediate. Our value curve is not a gentle slope. It is a steep cliff. We are programmed for Present Bias. Taking the immediate reward was a survival mechanism when tomorrow was never guaranteed. Today it is why we skip the gym but buy on credit.

Why is the present self at war with the future self?

We view our future selves as strangers and prioritize immediate dopamine over long term security.

We cognitively disconnect from our future identity. The You of next year feels like a different person. Future You can deal with the debt. Future You can deal with the diet. Present You wants the cookie. This served us well on the savannah where storing food for a year was impossible and risky. But in a compounding economy this instinct is financial suicide.

How does Buy Now Pay Later hack our circuitry?

It separates the joy of acquisition from the pain of payment which makes the transaction feel costless in the moment.

Services like Klarna and Afterpay exploit Hyperbolic Discounting perfectly. The consumer gets the product now (high immediate value). The consumer pays the money later (discounted future pain). To the irrational brain this feels like a free lunch. The joy is present. The cost is theoretical. It decouples the pleasure of acquisition from the pain of payment.

In the digital world the discount rate is extreme. If your website takes three seconds to load you lose 40 percent of users. They discount the value of your content to zero because the cost of waiting three seconds feels too high in the moment.

How do you sell a product with a delayed reward?

You must bundle the long term benefit with an immediate quick win that satisfies the reptile brain.

If you are selling a product with a long term payoff (like education or B2B software) you are fighting this bias. You are asking the user to pay now for a benefit they won't feel for months. That is a hard sell. You must drag the value into the present.

If you sell an SEO tool don't just promise higher rankings in six months. Promise to find 5 broken links in 60 seconds. That is an immediate dopamine hit. It gives the user a now reward to justify the purchase. You must also create artificial urgency. ordering by 5 PM imposes a penalty on the future and forces the brain to evaluate the decision in the present. We cannot change our wiring. We prefer the one marshmallow now. But if we understand the trap we can hide the marshmallow until we are ready to eat it.

Read More Biases

• Present Bias
• Action Bias
• Loss Aversion