Hyperbolic Discounting

QUOTE

Jean-Paul Sartre once said…

“We are our choices.”

(French philosopher and playwright)

CONCEPT

Hyperbolic Discounting

Hyperbolic Discounting is a cognitive bias in which people disproportionately prefer smaller, immediate rewards to larger rewards in the future, even when waiting would yield a better outcome.

In other words, we heavily “discount” the value of future benefits compared to those that are immediately available.

Tied closely to impulse control, hyperbolic discounting helps illuminate why long-term planning—like building up retirement savings, sticking to fitness routines, or pursuing long-term projects—often falls by the wayside in favor of short-lived gratification.

STORY

Tulip Mania … the First Speculative Bubble?

One of history’s most striking episodes of collective short-term thinking emerged during the Tulip Mania of 17th-century Holland.

By the early 1600s, tulips had become symbols of status and exotic elegance. Brought from the Ottoman Empire, the flowers commanded exceptionally high prices—particularly for rare varieties streaked with dramatic colors.

Merchants, aristocrats, and even ordinary townsfolk started buying tulip bulbs, believing prices would only continue to climb.

At first, tulips were exchanged among botanists and noble collectors who prized their rarity. But as word spread of the quick profits to be made, more and more people rushed to get in on the trade. Household servants sold heirlooms to purchase a single bulb, while prosperous merchants put up their homes as collateral to invest in future tulip harvests. Contracts were exchanged in taverns and inns, with some bulbs changing hands multiple times in a single day.

Day after day, individuals seized upon the chance for immediate profit, giving little thought to the long-term feasibility of endlessly escalating tulip prices. As bulbs became more expensive, speculators borrowed money, gambled away life savings, and leveraged almost anything of value, all in hopes of an even bigger payoff within weeks or months.

When winter ended in early 1637, the bubble abruptly burst.

A routine tulip auction failed to attract enough buyers, and confidence wavered. Almost overnight, panic set in. Merchants who’d spent fortunes acquiring bulbs at sky-high prices found themselves holding worthless paper contracts; no one was willing to match the inflated valuations. Defaults soared, and once-secure families faced bankruptcy.

The aftermath rattled the Dutch economy (though perhaps not as disastrously as legend sometimes suggests) and left many citizens pondering how they’d been swept up in the mania.

Tulip Mania reminds us that wisdom often lies in measured decisions and long-range thinking—lessons just as relevant today as they were four centuries ago.