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Getting sucked into temporal discounting

Improving Systems and Habits

Scott Miker is the author of several books that describe how to use systems and habits to improve.  This free blog provides articles that to help understand the principles related to building systems.  

Getting sucked into temporal discounting

Scott Miker

If I were to offer you $100 today or if you wait one year I will pay you $250, which would you choose?

Most people would naturally choose the $100. We want the reward now, even if it is discounted compared to what we could get in the future.

For people that choose the $100, why did you choose that option? It could be that you don’t expect the $250 payment to come, that you simply don’t trust me.

It could be that you are thinking of some great purchase you could make now. It could be that you have an investment in mind that you feel you could earn more than 2.5 times that amount in a year.

Regardless of the reasoning, making the decision to get the reward now instead of a larger reward later is called temporal discounting. It is a phenomenon that has been studied by psychologists and replayed over and over.

The reason is simple. We are creatures of the now. We want now to be better and are willing to sacrifice the future in order to get it.

It isn’t just that we get caught up in the thoughts of joy from the reward; this is how many people feel life should be.

I have lived in the Cleveland Ohio area my whole life. Being a Clevelander I have watched the Cleveland Browns for years and years. The fans are notorious for getting frustrated (rightfully so at times) and sharing their frustrations with anyone willing to listen and take part in the conversation.

A few years ago, after more than a decade of under-performing, the executives came out and said they are only worried about winning now and will do everything possible to win right away.

The problem was that the team was a mess. They were in no position to suddenly start winning. There was way too much work to do in order to win in the highly competitive NFL.

So they would draft a player who was considered risky. The thought was that if the player worked out they could start winning immediately.

But these risky draft choices usually didn’t work out. They were making a bet. Similar to the lottery and being able to put down $1 for a huge prize, the team would bet on these players that could offer a huge benefit now, but had a lot of uncertainty if they could even help the team due to injury issues, off-the-field issues, etc.

When I kept hearing them talk about winning now, I cringed. I knew that would likely mean more years of sacrificing tomorrow for today and taking huge risks that most of the time wouldn’t work out.

Finally some new executives came in with a different frame of mind. They started to stockpile draft picks by trading this years picks for better future picks. A few years of this and suddenly we were entering a draft with a lot of options and could legitimately make a significant improvement in the team.

So they were fired. The draft picks they did make didn’t turn out to be immediately great players. The fans were frustrated by the growing losses. The coach that had the worst record in football kept his job while those working to build for the future lost their jobs.

The Browns were in a constant state of temporal discounting. They were doing everything they could to win today. However that meant making it less likely they would win tomorrow. When tomorrow came, the odds of winning were even less so they sacrificed more future success for a glimpse of winning now.

While it is easy to point to an underperforming team, the reality is that we all do this. We all sacrifice the future for today.

Here is a quick example… what is better for your future health, broccoli or cheeseburgers? Obviously the health benefits of broccoli make it the better future choice.

Yet drive down any main street in America and try to find a broccoli joint. You can’t because they don’t exist. Instead, the streets are littered with burger joints. This isn’t due to some malicious conspiracy; it is simply a reflection of what will sell. What sells is due to our decisions as a group.

In other words, open a broccoli restaurant and you will likely go out of business. Open a burger restaurant and people will likely come to try your food and give you a chance at being successful.

While we can’t just flip a switch and change society, we can work to slowly change our own personal choices. We can start to sacrifice now for a better future. We can save money, exercise, eat healthy, read, etc. so that tomorrow we will be in a better position.

In essence we shift from temporal discounting to temporal investing. We start to invest in the future by sacrificing now, knowing that this gives us more of an advantage tomorrow. We make the safer bets that give us better odds of winning, even if the prize for winning isn’t as high.