Hyperbolic Discounting

Hyperbolic discounting refers to the tendency to use a very high (hyperbolic) discount rate when trying to compare the value of a dollar today with a dollar in the future. The high discount rate makes future values appear to be less than they actually are. In the world of annuities, hyperbolic discounting presents a challenge because people have a tendency to: a) overvalue current assets, and; b) undervalue or over-discount the value of annuity income that exists many years in the future.