Measuring the “discount factor”

Shane Frederick’s presentation looks at time preference and personal identity. In short people evaluate and compare future events and near events very differently.

The video shows two interesting graphs: the measure and uncertainty of the speed of light, in physics, over the course of the century, and the measure of the “discount factor”, in experimental economics.

Over time, the speed of light was measured with greater accuracy and experiments confirmed each other more. Not so for the discount factor which is a supposed constant in mainstream economics.

 

Also, he makes a vain attempt at predicting how people values different goods at different points in time. One study shows that people prefer increasing sequences compared to decreasing sequences, which may seem irrational or counter to a positive time preference (sooner is better). This is due to a psychological bias, people don’t like loosing what they have.

But it does not invalidate that people necessarily have positive time preference for identically serviceable goods.

 

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