Temporal Discounting
The behavioral economics concept of reduced valuation of rewards as they are delayed in time.
Also known as: Delay discounting, Intertemporal choice, Time preference
Category: Concepts
Tags: time, behavioral-economics, decision-making, psychology, values
Explanation
Temporal discounting is the behavioral economics term for how the subjective value of a reward decreases as the delay to receiving it increases. A $100 reward available immediately might be valued at $100, while the same reward in a year might subjectively feel worth only $80. The rate of discounting varies: steep discounters strongly prefer immediate rewards (impulsive); shallow discounters maintain value for delayed rewards (patient). Discounting tends to be hyperbolic rather than exponential - value drops quickly for near delays, then flattens. This creates preference reversals: choosing larger-later when both are distant but smaller-sooner when both are near. Factors affecting discount rates include: age (children discount steeply), substance issues (associated with steep discounting), and emotional state (stress increases discounting). For knowledge workers, understanding temporal discounting explains: why goals fail despite good intentions, how to structure incentives effectively, and why commitment devices and pre-commitment are valuable.
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