When a person willingly and knowingly sins thereby committing a transgression, does God punish or discipline them or does he simply allow them to bear the natural consequences that sin causes in a persons life? And is there a difference between God's punishment and God's discipline?
This question begins by asking about how God treats "a person." Unfortunately that's a bit too broad. To correctly answer this question we must know: Is this person a believer, and therefore a child of God, or are they an unbeliever? The answer to this question is vital, since we see in the Bible that God treats the two differently.
Secondly, we need some clarification here regarding the difference between discipline and punishment. The Bible does differentiate between the two, although often people do not. So what is the difference?
Discipline is the word used most often with regard to God’s dealings with believers, and the word literally means training such as in the rearing of a child. This is the case in the following passage:
Endure hardship as discipline; God is treating you as sons. For what son is not disciplined by his father? If you are not disciplined (and everyone undergoes discipline), then you are illegitimate children and not true sons. Hebrews 12:7-8 (NIV)
Elsewhere, when referring to non-believers and those who reject God, the word punishment is used. While there are several Greek words that can be translated into our English word punishment, the definitions range from payment of wages, to meanings like vengeance, and condemnation. As you can see, that’s quite different from the idea of discipline.
So, a believer is disciplined, and and those who continue in their unbelief would appear to be punished.
However, as to the question of God allowing circumstances to "play out" as a result of choices or actions, it appears from the Bible we can see this happening to believers and unbelievers alike. This is part of the spiritual principle of "sowing and reaping" which is affirmed in the Word over and over. (See Galatians 6:7-8)
So, in summary, does God allow people to endure the negative results of their actions and choices? Yes, in most cases I would say that is true.
Does God punish His children--those who have put their faith in Christ's finished work on the cross? The Bible says that God disciplines His children, meaning that any punitive actions are part of God's correction and training process. Punishment is most often reserved for unbelievers, and is the expression of God's justice and wrath. Remember, wrath is something that does not come to believers, since Jesus bore God's wrath for us on the cross. (See 1 Thessalonians 5:9)