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Updated: Apr 10, 2026
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Measuring Delay Discounting in Humans Using an Adjusting Amount Task
Published on: January 9, 2016
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Value of the future: Discounting in random environments.
J Doyne Farmer1,2, John Geanakoplos2,3, Jaume Masoliver4
1Institute for New Economic Thinking at the Oxford Martin School and Mathematical Institute, University of Oxford, Eagle House, Walton Well Rd. Oxford OX2 6ED, United Kingdom.
Summary
Future costs and benefits require careful discounting. Historical interest rates often overestimate long-run discount rates, potentially biasing cost-benefit analyses against future investments.
Area of Science:
- Economics
- Finance
- Mathematical Modeling
Background:
- Discounting future costs and benefits is crucial for economic analysis.
- Economic evolution involves random fluctuations in interest rates.
- Accurate valuation requires understanding discount functions under various economic models.
Purpose of the Study:
- To analyze the valuation of future costs and benefits using discounting.
- To incorporate economic randomness into discount function analysis.
- To compare discount rates derived from historical averages versus stochastic models.
Main Methods:
- Analysis of discount functions for Ornstein-Uhlenbeck, Feller, and log-normal interest rate dynamics.
- Derivation of exact expressions and asymptotic approximations for discount functions.
- Comparison of long-run discount rates with historical average interest rates.
Main Results:
- Exact expressions for discount functions were obtained for three stochastic interest rate models.
- Simple asymptotic approximations for discount functions were developed.
- Historical average interest rates were shown to overestimate long-run discount rates significantly.
Conclusions:
- Long-run discount rates should be substantially lower than historical averages.
- Overestimation of discount rates biases cost-benefit analysis towards the present.
- Accurate discounting is essential for protecting future interests and investments.
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