What is Discount function? : Abaara fun facts and uncommon knowledge

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Discount function

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

f (t)

then total utility is given by

$U(\{c_t\}_{t=0}^\infty)=\sum_{t=0}^\infty {f(t)*u(c_t)}$ .

Reference

For a comprehensive review, see: 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.

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Categories: Economics