I have recently come across the notion of ‘hyperbolic discounting’, a concept in behavioural economics that describes the tendency to weigh immediate costs too heavily and ignore long-term benefits. I can’t help noticing it among some of my colleagues.
I have always been a glass half-full type of guy. In behavioural economic terms, I guess I discount immediate costs and think only about the long-term benefits. This can be a real problem if you happen to be running a business during an economic downturn. You tend to concentrate on the prospect of things getting better in the middle distance and ignore the quicksand sucking at your feet; sometimes until its up to your chest and there’s no hope of recovery.
But my hyperbolic discounting colleagues are doing the reverse. Wading, as we are, through the far side of the recession swamp with our feed still muddy and the tug of the sand a fearsome memory; they feel that things will never improve and that we are destined for years of chasing income and discounting fees. Asking hyperbolic discounters to plan for a recovery is like asking a condemned man what he wants for his birthday. They see only the immediate problems and struggle to plan for any good times just around the corner.
But surely they will come back. A recovery is as inevitable as was the recession and the doom-mongers who tell us that the economy has been irrevocably changed will prove to be just as wrong as those who four years ago told us that they had abolished boom and bust. The only thing that is unsure is the timing. Will we see a return to normal service in 2010? Probably not. But in 2011 and 12 we will and the firms that plan for that now will be those best placed to benefit from it.
So just as we should listen to the glass half empty guys at the top of a boom, surely now its time to turn away from the hyperbolic discounters and start planning for growth.
Written by Stephen Byfield