Hyperbolic Discounting

So I was at a cafe, it was 11 in the night and the place was quite buzzing with people. I was standing by the bar and retrospecting on how it’s been over a decade of dating but I still end up interacting with the most aesthetically appealing girls at bars. Although the whole world riding on the digital wave, not much has changed here.

Just then a girl came along with her friend to the bar counter to order her drink. The reason I noticed her amongst the numerous other girls was her beautiful blue eyes. But that was just the tip of the iceberg, every part of her from the nose to the lips to the body was quintessentially crafted. Just then, she looked towards me and smiled. At first, I couldn’t believe it. It was when after a minute, she looked at me and smiled again is when I knew that God finally answered my prayers. I went up to her and we immediately hit it off. She invited me to join her at the table with her friends. It was a fun discussion of everything from the Taj Mahal to how a starfish can multiply into hundreds if it enters a turbine blade of a submarine. I didn’t notice how hours passed away just by her side, and it was time for the bar to close for the night.

Anyway, coming to the MBA concept of ‘Hyperbolic Discounting‘. Hyperbolic discounting is a time-inconsistent model of delay discounting and is one of the cornerstones of behavioral economics. In a study, subjects said they would be indifferent between receiving $15 immediately or $30 after 3 months, $60 after 1 year, or $100 after 3 years. These indifferences reflect annual discount rates that declined from 277% to 139% to 63% as delays got longer.

Hyperbolic discounting

This is a bias that a lot of us often end up falling prey to in modern-day dating as well. Choosing a ‘good time’ over a ‘good thing’, especially with the dating apps gamifying the whole concept of dating. It essentially boils down to choosing dopamine over oxytocin, the two chemicals of happiness involved in inter-personal connections. Dopamine rush is the tempting high-calorie Italian meal. The issue is that dopamine is for the short run and can’t be sustained for longer periods of time. You need oxytocin to balance out for the drop in dopamine. And oxytocin can be fostered by only investing in deeper emotional connections with your romantic partner. Thus, although a ‘good time’ might give an instant high, over the long run a ‘good thing’ gives long-lasting happiness. We often fall prey to hyperbolic discounting when faced with this choice and have to make an instant decision.

That brings me to the blue-eyed damsel. So is this it? Did I finally find the ‘good thing’? Well, the reason for her blue eyes, and the Taj Mahal discussion, is because she is Irish and was visiting India and heading to Agra the next day. Ironically though, she was staying in the Taj hotel, and the night was definitely a great time and even with the hyperbolic discounting will remain high on value decades later.



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