How THIS Particular Bias Shapes Your Investments

Let’s talk about hyperbolic discounting. Now that term is going to mean absolutely nothing to you, and that’s fine. But I’m sure the studies that actually proved it, and then your habits that you’ve developed with it, will resonate immediately.

The original idea came from Stanford University lecturer Walter Mischel. What he did is something that everybody knows about, is the study with kids and marshmallows. Basically, the way he did it was that he offered a kid one marshmallow now, or if they could somehow manage to sit still for 15 minutes, he’d give them two. 76% of them had the now. This demand that human beings have for now is incredible.

Now, the term hyperbolic discounting wasn’t really proven until a man named Richard Hemmingstein applied it to adults, revealing their inclination towards instant gratification over delayed gratification. This tendency demonstrates a demand for immediate rewards, prioritizing the present moment and seeking the highest possible return instantly.

So what he showed is that it probably explains why we’re okay with having credit cards that charges 20%, but superannuation funds that are returning about 9% per annum.

If you look at it, that’s what hyperbolic discounting is. The shorter the time, the more the return. The longer the time, the smaller the return needs to be.

It’s also about the structure of what you ask yourself. So let me take that again in another way. How much do you think you should make per annum? And when that question’s asked and you think about it right away, I bet you the first thing that goes into your head is something in the double digit.

Now in Australia, according to some of the studies we’ve had here, the average Australian thinks they should be getting between 13 and 15% per annum. In America, it’s 20%. Now statistics tell you that’s just not going to happen. But if we ask that question in reverse and put a longer time frame on it, how much would you have liked to have made in your super over the life of it? And the return normally comes down to something more between 7% and 9% per annum when it’s asked in that direction. Because again, our minds immediately turn around to now. It’s why things that are very attractive because of their high returns have high risk and why people get caught with high risk.

So what does that also mean? And why I want to tell you all about this is that it therefore also impacts your decision making. It impacts the way that you go about deciding what to invest and when.

If you’re aware of the fact that you think that in the short term, you should be getting 20% per annum, you know full well that’s probably wrong. It doesn’t matter what asset class you look at either, property, equity, bonds, cash. None of them should be giving you that kind of stuff per annum because you shouldn’t be thinking about that sort of short term.

So for us here at MOORR, the reason we want to talk about that is that you look at it from something like your WealthCLOCK . Your WealthCLOCK is telling you about your now, but it also shows you that the longer term view is what you’re trying to get to. If you can stay with it, not be that kid that wants the marshmallow now, but can get the two marshmallows in 15 minutes time. Imagine what you can get in 15 years time or 30 years time. That’s why hyperbolic discounting is something that you should be fully aware of in your investment journey. Because if you can get on top of it and think in the long term, the absolute return is always up to you.

👉 Transform your financial future with Moorr! Access WealthCLOCK. WealthSPEED, MoneySMARTS, and more, on our all-in-one platform. 

👉 Click here to download the Moorr iOS app and here for the Android app.


You might also be interested in

Try Moorr For Free Today

Spend money on the things you want without guilt and save for the future with confidence. You can have the best of both worlds. Achieve more, with Moorr

Privacy Policy

This following document sets forth the Privacy Policy for this website. We are bound by the Privacy Act 1988 (Crh), which sets out a number of principles concerning the privacy of individuals using this website.

Collection of your personal information

We collect Non-Personally Identifiable Information from visitors to this Website. Non-Personally Identifiable Information is information that cannot by itself be used to identify a particular person or entity, and may include your IP host address, pages viewed, browser type, Internet browsing and usage habits, advertisements that you click on, Internet Service Provider, domain name, the time/date of your visit to this Website, the referring URL and your computer’s operating system.

Free offers & opt-ins

Participation in providing your email address in return for an offer from this site is completely voluntary and the user therefore has a choice whether or not to disclose your information. You may unsubscribe at any time so that you will not receive future emails.

Sharing of your personal information

Your personal information that we collect as a result of you purchasing our products & services, will NOT be shared with any third party, nor will it be used for unsolicited email marketing or spam. We may send you occasional marketing material in relation to our design services.

What Information Do We Collect?

If you choose to correspond with us through email, we may retain the content of your email messages together with your email address and our responses.

Cookie Based Marketing

Some of our advertising campaigns may track users across different websites for the purpose of displaying advertising. We do not know which specific website are used in these campaigns, but you should assume tracking occurs, and if this is an issue you should turn-off third party cookies in your web browser.

How Do We Use Information We Collect from Cookies?

As you visit and browse Our Website, the Our Website uses cookies to differentiate you from other users. In some cases, we also use cookies to prevent you from having to log in more than is necessary for security. Cookies, in conjunction with our web server log files or pixels, allow us to calculate the aggregate number of people visiting Our Website and which parts of the site are most popular. This helps us gather feedback to constantly improve Our Website and better serve our clients. Cookies and pixels do not allow us to gather any personal information about you and we do not intentionally store any personal information that your browser provided to us in your cookies.

IP Addresses

P addresses are used by your computer every time you are connected to the Internet. Your IP address is a number that is used by computers on the network to identify your computer. IP addresses are automatically collected by our web server as part of demographic and profile data known as traffic data so that data (such as the Web pages you request) can be sent to you.

Sharing and Selling Information

We do not share, sell, lend or lease any of the information that uniquely identify a subscriber (such as email addresses or personal details) with anyone except to the extent it is necessary to process transactions or provide Services that you have requested.

How Can You Access and Correct Your Information?

You may request access to all your personally identifiable information that we collect online and maintain in our database by using our contact page form.

Changes to this Privacy Policy

We reserve the right to make amendments to this Privacy Policy at any time. If you have objections to the Privacy Policy, you should not access or use this website. You may contact us at any time with regards to this privacy policy.