Patient Decision Making: Exponential versus Hyperbolic Discounting
Article first published online: 25 MAY 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Volume 33, Issue 7-8, pages 453–462, October-December 2012
How to Cite
Graves, S. B. and Ringuest, J. L. (2012), Patient Decision Making: Exponential versus Hyperbolic Discounting. Manage. Decis. Econ., 33: 453–462. doi: 10.1002/mde.2548
- Issue published online: 18 SEP 2012
- Article first published online: 25 MAY 2012
Evidence strongly indicates that human decision makers discount the future using a hyperbolic function instead of following an exponential, which has been the long-standing assumption. We compare the exponential and hyperbolic models in evaluation of a simple research and development project selection problem, finding that the exponential function favors short-term choices, while the hyperbolic function favors the long-term. We demonstrate applications of the hyperbolic function, concluding that the traditional exponential—which does not faithfully represent typical human preferences—leads toward myopic decision making when compared to the hyperbolic. Copyright © 2012 John Wiley & Sons, Ltd.