Discount function

In economics, 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 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: U\Bigl( \{c_t\}_{t=0}^\infty \Bigr) = \sum_{t=0}^\infty {f(t)u(c_t)} Total utility in the continuous-time case is given by: U \Bigl( \{c(t)\}_{t=0}^\infty \Bigr) = \int_{0}^\infty {f(t)u(c(t)) dt} provided that this integral exists. Exponential discounting and hyperbolic discounting are the two most commonly used examples.

In economics, 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 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: U\Bigl( \{c_t\}_{t=0}^\infty \Bigr) = \sum_{t=0}^\infty {f(t)u(c_t)} Total utility in the continuous-time case is given by: U \Bigl( \{c(t)\}_{t=0}^\infty \Bigr) = \int_{0}^\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 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.

Text derived from https://en.wikipedia.org/w/index.php?oldid=1367013999 under CC BY-SA 4.0; modifications have been made.