What does delay discounting refer to?

Delay discounting refers to the tendency of individuals to prefer smaller rewards that are available immediately over larger rewards that require waiting for a period of time. This psychological phenomenon highlights how immediate gratification can often take precedence over potential long-term benefits. It reflects a common behavior that impacts financial decision-making, where individuals might choose to spend or take a smaller amount of money now instead of saving for a larger sum in the future.

In the context of personal finance, understanding delay discounting is crucial because it can influence one's savings habits, investment choices, and overall financial wellbeing. Recognizing this tendency can help individuals develop strategies to overcome the impulse for immediate rewards and instead focus on achieving longer-term financial goals. This is why preference for immediate rewards over larger future rewards is the correct answer.