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discounting the future


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Placing a lower value on future receipts than on the present receipt of an equal sum. The fundamental reason for discounting the future is impatience: immediate consumption is preferred to delayed consumption. This is referred to as pure time preference. Both individuals and societies are impatient in this sense. Other reasons for discounting the future include the risk that a payment may not in fact be made, the possibility that the person entitled to receive the payment may not be alive to enjoy it, and the expectation that the wealth of the recipient will have increased by the time the payment is due, thus lowering the marginal utility derived from any given sum. See also hyperbolic discounting.

Subjects: Economics.


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