An assumption on the rate of time preference that reflects observations of a bias towards present rewards. With standard exponential discounting the discount rate between any two periods is constant. In contrast, with hyperbolic discounting the discount rate between any two successive periods declines as the time horizon increases, so that the *elasticity of intertemporal substitution depends on the timing of the change in the intertemporal price.
See also behavioural economics.
Reference: Oxford Press Dictonary of Economics, 5th edt.