Cloudonomics: The Business Value of Cloud Computing, + Website

Hyperbolic Discounts and Instant Gratification

Many of the issues just discussed are behavioral issues that may hinder rational adoption of the cloud; there also are several biases that benefit the cloud.

In classic financial analysis, there is a time value of money: A dollar today is worth more than $1 a year from now, because the $1 today can be invested or gather interest and therefore be worth, say, $1.10 in a year. Beyond the rational analysis based on financial rates of return, there is another effect at work.

Hyperbolic discounting is the irrational bias that exists beyond the rational calculation of the time value of money. In effect, a dollar today is perceived as not just worth 1.1 times as much as the one in a year but twice as much or ten times as much, and not just in one year but in one hour.

In a famous experiment conducted at Stanford, children four to six years old were given the choice of eating one marshmallow or Oreo cookie immediately or delaying consumption by 15 minutes and receiving a second one as a reward. Follow-up analyses years later showed that those who had demonstrated the ability to defer gratification were rated as more competent.36

But who wouldn’t prefer benefits sooner, especially in today’s hypercompetitive world? Rare is the leader who would say “Let’s wait and see” rather than immediately taking advantage of a business opportunity.

These biases are favorable for both private and public cloud implementations: Instant access to resources is ...