The following text discusses economics.
Behavioral economics has identified numerous ways people deviate from traditional rational choice models. "Hyperbolic discounting" describes the tendency to prefer smaller rewards now over larger rewards later more than time-consistency would predict. A person might choose 120 next month, yet prefer 100 in twelve months—even though the choice is structurally identical. This inconsistency explains procrastination and difficulty saving for retirement. Interventions like automatic enrollment use these insights to "nudge" better decisions.
What example of hyperbolic discounting does the text provide?
Consistently preferring larger rewards regardless of timing
Different preferences for identical choices depending on proximity to the present
Always choosing to save money for retirement
Making perfectly consistent choices across all time periods
Correct Answer: B
Choice B is the correct answer. The example shows choosing 120 later, but reversing when both options are pushed twelve months into the future—"the choice is structurally identical" but preference changes.
- Evidence: Same choice, different preference based on temporal proximity.
- Reasoning: Nearness to present disproportionately affects value.
- Conclusion: Proximity changes preferences for identical structures.
Choice A is incorrect because smaller now is sometimes preferred. Choice C is incorrect because difficulty saving is explained by the bias. Choice D is incorrect because the bias shows inconsistency.