A general model of demand and discounting

Area of Science:

• Behavioral Economics
• Psychology
• Computational Neuroscience

Background:

• Delay discounting describes the tendency to devalue rewards as they are delayed.
• Existing models often do not fully account for the interplay of time, substitution, and demand amplitude.
• Understanding these factors is critical for various applications, including addiction research.

Purpose of the Study:

• To develop and test a simulation model for delay discounting that incorporates time elasticity and cross-price substitution.
• To investigate how these new parameters influence discount functions.
• To explore the implications of this model for understanding substance use disorder.

Main Methods:

• A two-commodity temporal demand equation was used to emulate delay discounting experiments.
• Simulations analyzed the impact of time elasticity, substitution, and demand amplitude on discount rates.
• The model was validated against primary findings from delay discounting research.

Main Results:

• Simulated discount functions for substitutes were hyperbolic, shifting towards exponential with increased time elasticity and substitutability.
• Demand amplitude was inversely proportional to the discount rate, supporting a hyperboloid model.
• Cross-commodity discounting simulations highlighted the roles of demand persistence and substitution.

Conclusions:

• This work presents the first general model of time-dependent demand and delay discounting.
• Cross-commodity substitution is identified as a significant factor in delay discounting.
• The model emphasizes the need to characterize multicommodity demand properties in contexts like substance use disorder.