In
economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
, a discount function is used in
economic model
An economic 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 ...
s to describe the
weights placed on rewards received at different points in time. For example,
if time is discrete and
utility
In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings.
* In a normative context, utility refers to a goal or objective that we wish ...
is time-separable, with the discount function having a negative
first derivative and with (or in continuous time) defined as
consumption at time , total utility from an infinite stream of consumption is given by:
Total utility in the
continuous-time
In mathematical dynamics, discrete time and continuous time are two alternative frameworks within which variables that evolve over time are modeled.
Discrete time
Discrete time views values of variables as occurring at distinct, separate "poi ...
case is given by:
provided that this integral exists.
Exponential discounting and
hyperbolic discounting
In economics, hyperbolic discounting is a time inconsistency, 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.
Acc ...
are the two most commonly used examples.
See also
*
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 dis ...
*
Intertemporal choice
*
Temporal discounting
References
* Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," ;;Journal of Economic Literature;;, vol. 40(2), pages 351-401, June.
Intertemporal economics