If you work in marketing or run a business, you’ve probably experienced this tension.
Do you focus on quick wins that deliver immediate results, or do you invest in building long-term customer relationships that take time to develop?
It’s a constant balancing act.
Interestingly, behavioural science has a name for this tendency. It’s called Hyperbolic Discounting. And once you understand it, you start to see its influence everywhere in business and everyday life.
What Is Hyperbolic Discounting?
Hyperbolic Discounting describes our tendency to choose immediate rewards over larger but delayed rewards. In other words, people tend to prioritise short-term benefits over long-term gains. This bias can lead to impulsive decision-making.
Put simply, we prefer immediate gratification.
For example, if I offered you £100 today or £120 in a year, many people would take the £100 now, even though waiting would provide a greater reward.
It’s not necessarily irrational. It’s just how our brains are wired. There’s also a common psychological phenomenon of emotionally disconnecting from our future selves. Where we view our future selves as strangers, leading to poor long-term decision-making, such as neglecting savings or health.
Behavioural economist David Laibson illustrated this beautifully in Golden Eggs and Hyperbolic Discounting. He explains how people struggle to make long-term decisions that benefit their future selves, especially when immediate rewards are available. This short-term thinking plays out in everything from under-saving for retirement to over-spending on credit.
A great real-world example of behavioural design to overcome this is automatic pension enrolment. Because contributions happen by default, people build long-term savings without constantly battling the temptation to spend the money today. After all, if I gave you access to your pension fund today, would all of it still be there in 6 months time?
Hyperbolic Discounting in Everyday Life
Once you start looking for it, you’ll notice hyperbolic discounting everywhere.
1. Buy Now, Pay Later
Services like Klarna thrive on this hyperbolic discounting.
They allow customers to receive something immediately while delaying the financial cost. The immediate reward is clear, while the future cost feels distant and abstract.
For many consumers this leads to overspending, with research showing that “buy now, pay later” users often accumulate more debt than expected.
2. The Gym vs Netflix
A battle I can relate. The classic example is the gym membership we enthusiastically sign up for in January. At that moment, our future self feels motivated, disciplined and ready to transform.
Fast forward a few months and the immediate reward of staying home with Netflix or ordering Uber Eats often wins.
Interestingly, gyms are well aware of this behaviour. A large portion of their revenue comes from members who continue paying but rarely attend.
3. The Brand vs Performance Trap
In marketing, hyperbolic discounting often appears as the classic brand versus performance debate. In an increasingly data-driven world, it’s incredibly easy to focus on short-term metrics.
- Clicks
- Conversions
- Immediate return on investment
These metrics are visible and measurable, so naturally they attract attention. The danger is that organisations begin prioritising these short-term gains at the expense of long-term brand building. Over time that can weaken brand equity, reduce loyalty and ultimately damage profitability.
Research by Les Binet and Peter Field suggests that the most effective marketing strategies maintain a balance. Their work recommends roughly a 60/40 split between long-term brand building and short-term activation. So brands that move too far towards short-term activation often see diminishing returns over time.
Designing experiences for the long term
Understanding hyperbolic discounting isn’t just useful for explaining behaviour. It can also help us design better experiences. By introducing the right structures or “commitment devices”, brands can encourage decisions that create better long-term outcomes for customers.
That might involve:
- Making beneficial choices easier
- Removing friction from long-term commitments
- Designing experiences that reward loyalty rather than just immediate transactions
When behavioural science is used responsibly, it helps customers make decisions that benefit both them and the brand.
Thinking beyond the next quarter
The challenge for modern marketing is resisting the gravitational pull of short-term thinking. Quarterly targets, dashboards and performance metrics all push us towards immediate results.
But the strongest brands are built over years, not weeks. They’re built through consistent experiences, meaningful relationships, the trust and loyalty that compounds over time.
A thought for you
Understanding biases like hyperbolic discounting can help us step back and ourselves:
Are we optimising for the next campaign, or are we building something that will still matter in ten years’ time?
In this episode of The Customer Experience Lab , we explore the power of Hyperbolic Discounting on businesses and decision making.
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