Hyperbolic Discounting and Swing

October 3, 2011

Consider an infinite-horizon decision problem consisting of a sequence of beats. Each beat is divided into two eighth notes and you have to decide when to play them.  If you have standard exponential discounting you will evenly space your beats through time.  You will play a classical rhythm.  But if you are what behavioral economists call a hyperbolic discounter and you have present bias, you will procrastinate the first eighth note.  But then in order to complete the beat you will need to play the second eighth note in quick succession.  This pattern will repeat through time.  You will play a swing rhythm.