Author(s)

Ying Sun

Corresponding Author

Ying Sun

ABSTRACT

‘Rational people’ hypothesis is always regarded as the foundation of current economy although there are many limitations. After the improvement made by many scientists, Herbert Simon proposed the theory of bounded rationality. Based on that, prospect theory was developed to replace the expected utility which was built on ‘rational people’ hypothesis. Prospect theory itself is the basic theory of behavioural economics, and also the first theory to make researches on economics from psychology. It is under that condition that the present bias, related to hyperbolic discounting, was built. Present bias reveals that people prefer immediate advantages to future advantages during a short period, and such preference would fall rapidly. After that the paper show some utilization of present bias, especially in political and economic fields. Last but not least, there are also some methods introducing how to use or prevent present bias.

KEYWORDS

Rational people, bounded rationality, hyperbolic discounting, present bias