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 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 r ... * Temporal disc ...
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Economic Model
In economics, a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed to illustrate complex processes. Frequently, economic models posit structural parameters. A model may have various exogenous variables, and those variables may change to create various responses by economic variables. Methodological uses of models include investigation, theorizing, and fitting theories to the world. Overview In general terms, economic models have two functions: first as a simplification