From data through discount rates to the area under the curve

Area of Science:

• Behavioral Economics
• Intertemporal Choice
• Decision Science

Background:

• Discounting future goods impacts individual well-being and global sustainability.
• Accurate measurement of future value is essential for informed decision-making.
• Traditional discount functions with multiple parameters present interpretation challenges.

Purpose of the Study:

• To develop a universal and robust measure for the rate of discounting future goods.
• To establish a reliable method for calculating the area under the discount curve (AuC).
• To explore the relationship between the AuC and discount rate parameters.

Main Methods:

• Utilized hyperbolic and hyperboloid discount functions.
• Developed a technique to convert data into discount rate estimates, removing outliers.
• Calculated the area under the discount curve (AuC) from these estimates.

Main Results:

• The proposed method successfully predicts the AuC.
• Demonstrated a clear relationship between the AuC and the logarithm of the discount rate (log(k)).
• The technique provides a simplified approach to analyzing discount functions.

Conclusions:

• The area under the discount curve (AuC) offers a robust measure for intertemporal trade-offs.
• The new method simplifies the estimation of discount rates and AuC.
• This approach enhances understanding of how future value is perceived and discounted.