If someone offered you the choice between $1,000 now or $1,400 in a month, which option would you choose?
Somewhat surprisingly, many people prefer the immediate reward even though the future payout is far greater.
Temporal discounting is the process by which a person values immediate rewards more highly than rewards that are delayed or given in the future, even when those rewards are larger or more beneficial.
This tendency explains why people sometimes make impulsive decisions, choosing short-term gratification over long-term gain.
Key to this process is the fact that the further away in time a reward is, the less value people typically assign to it. In other words, temporal discounting suggests that short-term discomfort or inconvenience is commonly weighed more heavily than future consequences.
This bias also applies to risk as well. People simply discount the negative impact of risks that are a long way out.
Temporal discounting is crucial in fields like health, addiction, and personal finance because it explains why people often struggle with saving money, dieting, or avoiding addictive behaviors. Rather than a lack of willpower or self-control, people sometimes overweigh the short-term satisfaction against the long-term gain.
Discounting plays an equally important role in leadership and decision-making. Leaders who succumb to the effects of discounting prioritize short-term outcomes while often sacrificing future objectives and gains.
When quick wins are valued more heavily, the team soon realizes that the game is to achieve current priorities over longer-term aspirations and goals. This often creates a misalignment that undermines team effectiveness and organizational success.
Leaders who recognize the natural tendency to discount can make wiser decisions by consciously factoring in long-term objectives when they set goals and discuss performance.
As you look at the current team goal set, how many are short-term and how many are goals that won’t be achieved until at least several months from now? If discounting is too heavily in play, short-term goals will possess the lion’s share of the focus.
Maintaining a sense of confidence and optimism about achieving long-range goals can help to curtail its effects. Good leaders talk frequently about long-term aspirations and projects while setting short-term priorities.
They also commit resources to longer-term initiatives, such as talent development, innovation, and process improvement, to offset any attempt at discounting. Weak leaders and organizations often conclude that they can be invested in later.
Leaders who make the argument that the team must achieve its immediate goals to create the resources or finances to support the long-term have been hit over the head by discounting.
Navigating the tension between short- and long-term goals and the urgent versus the aspirational is always the reality. In good teams and organizations, they are never mutually exclusive.
Temporal discounting is yet another enemy of great leadership and decision-making. Like all enemies, knowing where they are and what influence they are having is critical in curtailing their negative impact.
Don’t let discounting derail your best work as a leader. Stay equally focused on both today’s priorities and tomorrow’s aspirations.
