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Discounted Utility
In economics, discounted utility is the utility (desirability) of some future event, such as consuming a certain amount of a good, as perceived at the present time as opposed to at the time of its occurrence. It is calculated as the present discounted value of future utility, and for people with time preference for sooner rather than later gratification, it is less than the future utility. The utility of an event ''x'' occurring at future time ''t'' under utility function ''u'', discounted back to the present (time 0) using discount factor \beta, Is :\beta ^t u(x_t). Since more distant events are less liked, 0 < \beta < 1. Discounted utility calculations made for events at various points in the future as well as at the present take the form : where is the utility of some choice at time and ''T'' is the time of the most distant future satisfaction event. Here, since utility comparis ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interactions of Agent (economics), economic agents and how economy, economies work. Microeconomics analyzes what's viewed as basic elements in the economy, including individual agents and market (economics), markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and factors affecting it: employment of the resources of labour, capital, and land, currency inflation, economic growth, and public policies that have impact on glossary of economics, these elements. Other broad distinctions within economics include those between positive economics, desc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Rationality
Rationality is the quality of being guided by or based on reasons. In this regard, a person acts rationally if they have a good reason for what they do or a belief is rational if it is based on strong evidence. This quality can apply to an ability, as in rational animal, to a psychological process, like reasoning, to mental states, such as beliefs and intentions, or to persons who possess these other forms of rationality. A thing that lacks rationality is either ''arational'', if it is outside the domain of rational evaluation, or ''irrational'', if it belongs to this domain but does not fulfill its standards. There are many discussions about the essential features shared by all forms of rationality. According to reason-responsiveness accounts, to be rational is to be responsive to reasons. For example, dark clouds are a reason for taking an umbrella, which is why it is rational for an agent to do so in response. An important rival to this approach are coherence-based accoun ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Temporal Discounting
In economics, time preference (or time discounting, delay discounting, temporal discounting, long-term orientation) is the current relative valuation placed on receiving a good or some cash at an earlier date compared with receiving it at a later date. Time preferences are captured mathematically in the discount function. The higher the time preference, the higher the discount placed on returns receivable or costs payable in the future. One of the factors that may determine an individual's time preference is how long that individual has lived. An older individual may have a lower time preference (relative to what they had earlier in life) due to a higher income and to the fact that they have had more time to acquire durable commodities (such as a college education or a house). Example A practical example: Jim and Bob go out for a drink but Jim has no money so Bob lends Jim $10. The next day Jim visits Bob and says, "Bob, you can have $10 now, or I will give you $15 when I get p ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Intertemporal Choice
Intertemporal choice is the process by which people make decisions about what and how much to do at various points in time, when choices at one time influence the possibilities available at other points in time. These choices are influenced by the relative value people assign to two or more payoffs at different points in time. Most choices require decision-makers to trade off costs and benefits at different points in time. These decisions may be about saving, work effort, education, nutrition, exercise, health care and so forth. Greater preference for immediate smaller rewards has been associated with many negative outcomes ranging from lower salary to drug addiction. Since early in the twentieth century, economists have analyzed intertemporal decisions using the discounted utility model, which assumes that people evaluate the pleasures and pains resulting from a decision in much the same way that financial markets evaluate losses and gains, exponentially 'discounting' the value of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Discount Function
A discount function is used in economic models to describe the weights placed on rewards received at different points in time. For example, if time is discrete and utility is time-separable, with the discount function f(t) having a negative first derivative and with c_t (or c(t) in continuous time) defined as consumption at time ''t'', total utility from an infinite stream of consumption is given by :U(\_^\infty)=\sum_^\infty . Total utility in the continuous-time case is given by :U(\_^\infty)=\int_^\infty {f(t)u(c(t)) dt} provided that this integral exists. Exponential discounting and hyperbolic discounting are the two most commonly used examples. See also *Discounted utility *Intertemporal choice *Temporal discounting In economics, time preference (or time discounting, delay discounting, temporal discounting, long-term orientation) is the current relative valuation placed on receiving a good or some cash at an earlier date compared with receiving it at a later .. ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Ceteris Paribus
' (also spelled '; () is a Latin phrase, meaning "other things equal"; some other English translations of the phrase are "all other things being equal", "other things held constant", "all else unchanged", and "all else being equal". A statement about a causal, empirical, or logical relation between two states of affairs is ''ceteris paribus'' if it is acknowledged that the statement, although usually accurate in expected conditions, can fail because of, or the relation can be abolished by, intervening factors. chapter 2 A ''ceteris paribus'' assumption is often key to scientific inquiry, because scientists seek to eliminate factors that perturb a relation of interest. Thus epidemiologists, for example, may seek to control independent variables as factors that may influence dependent variables—the outcomes of interest. Likewise, in scientific modeling, simplifying assumptions permit illustration of concepts considered relevant to the inquiry. An example in economics is "If t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Daniel Kahneman
Daniel Kahneman (; he, דניאל כהנמן; born March 5, 1934) is an Israeli-American psychologist and economist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences (shared with Vernon L. Smith). His empirical findings challenge the assumption of human rationality prevailing in modern economic theory. With Amos Tversky and others, Kahneman established a cognitive basis for common human errors that arise from heuristics and biases, and developed prospect theory. In 2011 he was named by '' Foreign Policy'' magazine in its list of top global thinkers. In the same year his book ''Thinking, Fast and Slow'', which summarizes much of his research, was published and became a best seller. In 2015, ''The Economist'' listed him as the seventh most influential economist in the world. He is professor emeritus of psychology and public affairs at Princeton U ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Amos Tversky
Amos Nathan Tversky ( he, עמוס טברסקי; March 16, 1937 – June 2, 1996) was an Israeli cognitive and mathematical psychologist and a key figure in the discovery of systematic human cognitive bias and handling of risk. Much of his early work concerned the foundations of measurement. He was co-author of a three-volume treatise, ''Foundations of Measurement''. His early work with Daniel Kahneman focused on the psychology of prediction and probability judgment; later they worked together to develop prospect theory, which aims to explain irrational human economic choices and is considered one of the seminal works of behavioral economics. Six years after Tversky's death, Kahneman received the 2002 Nobel Memorial Prize in Economic Sciences for the work he did in collaboration with Amos Tversky. (The prize is not awarded posthumously.) Kahneman told ''The New York Times'' in an interview soon after receiving the honor: "I feel it is a joint prize. We were twinned for ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Empirical
Empirical evidence for a proposition is evidence, i.e. what supports or counters this proposition, that is constituted by or accessible to sense experience or experimental procedure. Empirical evidence is of central importance to the sciences and plays a role in various other fields, like epistemology and law. There is no general agreement on how the terms ''evidence'' and ''empirical'' are to be defined. Often different fields work with quite different conceptions. In epistemology, evidence is what justifies beliefs or what determines whether holding a certain belief is rational. This is only possible if the evidence is possessed by the person, which has prompted various epistemologists to conceive evidence as private mental states like experiences or other beliefs. In philosophy of science, on the other hand, evidence is understood as that which ''Scientific method#Confirmation, confirms'' or ''disconfirms'' Hypothesis#Scientific hypothesis, scientific hypotheses and arbitrates ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hyperbolic Discounting
In economics, hyperbolic discounting is a time-''inconsistent'' model of delay discounting. It is one of the cornerstones of behavioral economics and its brain-basis is actively being studied by neuroeconomics researchers. According to the discounted utility approach, intertemporal choices are no different from other choices, except that some consequences are delayed and hence must be anticipated and discounted (i.e., reweighted to take into account the delay). Given two similar rewards, humans show a preference for one that arrives sooner rather than later. Humans are said to ''discount'' the value of the later reward, by a factor that increases with the length of the delay. In the financial world, this process is normally modeled in the form of exponential discounting, a time-''consistent'' model of discounting. Many psychological studies have since demonstrated deviations in instinctive preference from the constant discount rate assumed in exponential discounting. Hyperbolic d ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Homo Economicus
The term ''Homo economicus'', or economic man, is the portrayal of humans as agents who are consistently rational and narrowly self-interested, and who pursue their subjectively defined ends optimally. It is a word play on ''Homo sapiens'', used in some economic theories and in pedagogy. In game theory, ''Homo economicus'' is often modelled through the assumption of perfect rationality. It assumes that agents always act in a way that maximize utility as a consumer and profit as a producer, and are capable of arbitrarily complex deductions towards that end. They will always be capable of thinking through all possible outcomes and choosing that course of action which will result in the best possible result. The rationality implied in ''Homo economicus'' does not restrict what sort of preferences are admissible. Only naive applications of the ''Homo economicus'' model assume that agents know what is best for their long-term physical and mental health. For example, an agent's u ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Utility (economics)
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosophers such as Jeremy Bentham and John Stuart Mill. The term has been adapted and reapplied within neoclassical economics, which dominates modern economic theory, as a utility function that represents a single consumer's preference ordering over a choice set but is not comparable across consumers. This concept of utility is personal and based on choice rather than on pleasure received, and so is specified more rigorously than the original concept but makes it less useful (and controversial) for ethical decisions. Utility function Consider a set of alternatives among which a person can make a preference ordering. The utility obtained from these alternatives is an unknown function of the utilities obtained from each alternative, not the sum of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
