Suppose you're friends with both Alice and Bob. Both of them are great people, but a little self-centered; Alice, in particular, has the bad habit of periodically walking up to Bob and punching him in the face for fun. You ask Alice how she would would like it if Bob punched her in the face. "I would hate that," Alice responds as she pauses from her pugilism. "In fact, I would definitely prefer a world where neither of us punched the other, to a world where we both punched each other. However, I prefer even more the current world, where I can land blow after blow to Bob's head without immediate consequence to myself."
Clearly the amount of harm caused to Bob by these one-sided fights is greater than the benefit accrued to Alice, so despite being friends with both, you owe it to Bob to try to thwart the consistent battery.
This situation is exactly analogous to the situation you find yourself in every day, with respect to your attitude to your future selves. If you're not just concerned with the welfare of youtomorrow, the person you will be tomorrow, but are also concerned with the welfare of younext week, you should face up to the fact that there's an excellent chance hyperbolic discounting means that youtomorrow is going to figuratively punch younext week in the face.
Hyperbolic discounting is best described with an example. Suppose that you are trying to quit smoking because you've judged that never smoking cigarettes is better than smoking cigarettes every day. On Monday, hope that you can go without cigarettes on Tuesday. However, when Tuesday arrives, you smoke, hoping that you will quit on Wednesday. On Wednesday you light up again, predictably regretting the decision you made on Tuesday; youTuesday has predictably stomped all over the preferences of both youWednesday and youMonday. If you care about youWednesday, then youMonday should consider taking action to dissuade youTuesday from making his poor decision, for example by throwing away your cigarettes or enlisting peer pressure to prevent youTuesday from smoking.
Hyperbolic discounting is usually irrational. One can make various tortured models where uncertain risks cause us to rationally change our mind; in this scenario, it would correspond to receiving significant new information on Tuesday about the odds of acquiring cigarettes, or contracting cancer, or both, that you infer from the mere fact that you are still alive and capable of smoking on Tuesday. Such odd models with rational hyperbolic preferences are not generally applicable when attempting to attain goals in modern life.
A rational person will seek to normalize their hyperbolic discounting in some way, for example by improving their abilities to commit ahead of time to pursue rational and consistent policies. Failing to consider deploying commitment strategies in the presence of known and predictable temptations is irrational.
- Life-cycle consumption and hyperbolic discount functions
- Uncertainty and Hyperbolic Discounting
- Discounting by Intervals: A Generalized Model of Intertemporal Choice, for possible refinements to the hyperbolic model
- Less Wrong thread on "Applied Picoeconomics"