What is the hyperbolic discount?
It is a psychological bias that can lead people to make bad decisions because impulsivity incentive instead of the future vision, distorting the perception of value. If the most important thing in making a decision is that the benefit is immediate, even if that benefit is lower, then the discount (the gain cut), becomes hyperbolic, that is exaggerated
What implications does the hyperbolic discount on financial decisions have?
Applied to financial planning, it is clearly not a good advisor.
If they offered you $ 100 now or US $ 120 in a week…. What would you choose?
In the same way … the money that eventually left over at the end of the month, do you spend it (immediate reward) or inverted it (future reward)?
With this I do not say that we do not consummate or stop giving us tastes, but that we analyze that if we always seek immediate satisfaction, this behavior often leads us to our “future self” could regret it.
How to overcome it?
Just as we discipline ourselves when we want to achieve something valuable such as being physically fit and we go to the gym or achieve a certain professional qualification and we study for years, in the financial planning area we should also have some commitment device, such as having some Automatic savings plan that disciplines me at the beginning of the month before starting to consume by allocating 10 % of my income and living with the remaining 90 %.
Another way to overcome it is to create periods of reflection where before making any non -essential purchase, wait a few days and make a rational analysis of the pro and cons of making that decision, that way we avoid impulsivity.
Contact data:
Enrique Zeppa
Mail: [email protected]
Cell: +54 9 11 53866653
Instagram: Ez. Intelligent Financing
By CEDOC
