Make Money by Waiting—Put an End to Temporal Discounting

avoiding temporal discounting leads to smarter decisions that result in future gain

By Peter M. Vishton, PhDWilliam & Mary
Edited by Kate Findley and proofread by Angela Shoemaker, Wondrium Daily

To make better decisions, brain scientists recommend spending a few minutes engaged in mental time travel, having a brief visit with your future self as you ponder what to do in certain situations. Dr. Vishton explains how mental time travel can result in a happier, healthier, and wealthier future you.

Woman taking time out of her day to imagine
Cognitive neuroscientists have found that temporal discounting affects decision-making today that would otherwise result in greater rewards gained later in the future. Photo by fizkes / Shutterstock

Temporal Discounting and Money

Mental time travel helps to mitigate the damage done by temporal discounting. Temporal discounting refers to the human tendency to discount, or disregard, rewards the farther off they are in the future. In other words, most people have no patience for delayed gratification or sacrificing pleasure in the short-term to achieve long-term gains.

Consider these two choices: You can receive $10 now or you can receive $15 next week. Which would you prefer?

Due to temporal discounting, most people would rather receive $10 now than $15 next week. We prefer to receive rewards sooner rather than later so much that we’ll often choose a smaller reward now over a delayed larger reward.

From an economics perspective, there is some value to temporal discounting. If someone gives you cash today and you invest it, it might increase in value over time. 

It’s also the case that having money today provides flexibility that might have value. If you use that money to purchase some durable goods—maybe a tennis racket—then you get to start enjoying that item right away.

Consequences of Short-Term Decision-Making

There’s some validity to temporal discounting, but what cognitive neuroscientists have found is that we engage in far more temporal discounting than makes sense as an economic calculation.

For example, if you invest $10 today, you’d be lucky to turn it into $10.50 by the end of the month. Yet, in order to wait a full month, most people want that reward to be at least $14 before they’ll opt for the delayed option.

While temporal discounting is, in principle, a sensible thing in small amounts, hundreds of studies have found that the human brain uses a temporal discounting rate that is far too high. If we can compensate for that tendency, our reasoning can be substantially improved. 

Note, by the way, that this effect doesn’t just work for these small amounts of money—the key is the relative amount of money. Thus, the same would be true in the situation of receiving $1,000 now versus $1,400 in 30 days.

Other Examples of Temporal Discounting

Temporal discounting happens with cash rewards, but also with a broader class of choices, situations, and behaviors. For example, you might be faced with the decision of spending the day relaxing and playing or spending the day working. 

The pleasure of relaxing and playing is the small, immediate reward. The working will produce rewards as well—hopefully much greater rewards in the form of money, career advancement, and a sense of satisfaction in your accomplishments. Those are greater rewards, but they’re inherently delayed relative to the immediate fun of playing today.

To draw a parallel to the money experiment, the “play now” choice is like the $10 immediate gift. The “work now, enjoy more later” is equivalent to the $14 gift after 30 days. 

Perhaps the most interesting aspect of this process is that we often reason through a decision like this, and realize that, deep down, we want to take the bigger, delayed reward, but then we don’t. It’s similar to wanting to eat a giant ice cream sundae.

You know that the best thing to do is to resist the momentary, immediate pleasure of the eating in order to promote the far more pleasurable goal of being fit and healthy in the long term. After all this, you pick up a spoon and eat the sundae anyway.

Mental Time Travel Benefits

Reducing our tendency to engage in temporal discounting can reduce the likelihood of making this kind of choice. Mental time travel can help. Going back to our ice cream sundae example, project yourself forward about 20 minutes. 

See what that future will look like and feel like. There’s an empty ice cream bowl in front of you. That immediate pleasure has now passed, and you’re left with a sugar high, followed by an energy crash. 

How will you feel? By pondering that scenario, even briefly, you’ll more heavily weigh the consequences of this future situation as you make decisions in your present.

This article was edited by Kate Findley, Writer for Wondrium Daily, and proofread by Angela Shoemaker, Proofreader and Copy Editor for Wondrium Daily.
Image of Professor Peter Vishton

Peter M. Vishton is an Associate Professor of Psychology at William & Mary. He earned his PhD in Psychology and Cognitive Science from Cornell University. Before joining the faculty of William & Mary, he taught at Northwestern University and served as the program director for developmental and learning sciences at the National Science Foundation.