How much do the experts wish to discount the future by?

…we find that expert opinion is particularly varied on the rate of time preference.  The modal value is zero, in line with many prominent opinions.  But with a median (mean) of 0.5 percent (1.1 percent)…


…while we find that experts recommend placing greater weight on normative than positive issues when determining the SDR, most believe that the SDR should be informed by both.

That is from the latest issue of American Economic Journal: Economic Policy, “Discounting Disentangled” by Drupp, Freeman, Groom, and Nesje.  You will of course find a lengthy discussion of these issues in my own Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals.


OMG! I don't think all readers here would understand: zero discount rate means you think the future is going to happen just like you said it will right now. Not realistic! The discount rate is too low. Experts trying to get media attention. I bet they wouldn't put their money where their mouth is.

I was amazed by that too. Modal at zero? Wow.

Yes, I would also bet they all have consumption patterns that belie that stated preference. They can't seriously believe we should entirely immiserate ourselves for the benefit of posterity, which is what zero pretty much implies.

Acting like a guest blogger allows writer to create
relevant backlinks to incredibly own blogs.
As you can imagine, this will be a fairly repetitious process.
My time is too precious to waste on fledgling sites.

Thankfully, we don't have to use Amazon Search to know precisely what edition of a book that Prof. Cowen recommends we buy.

TC makes money from clicks, as is only fair, don't you agree, Red Bosch-loving f(r)iend?

As for this blog, a couple of years ago I said: ." if Chris Blattman gets $6k a year from Amazon and has one-seventh the traffic (Alexa) of TC’s site", then TC must make $42k from blogging, though I think Google recently decreased the amount they pay out, so maybe it's more like $35k. Not bad for picking the brains of the 1970s New Jersey State chess champion, don't you agree?

"The modal value is zero": liars.

Don't mean the authors, I mean their respondents.

That answer is so far off from what I would expect, that I feel I'm missing something.

For starters, I'd like to borrow their life savings and I'll pay it back at their retirement age at inflation +0.0001%. Clearly they should jump at the offer.

Why bother offer inflation? I assumed it was a nominal rate of 0.

I assumed it was a real rate of 0.

Ah, but Rat, they will claim they need to add a risk premium for you. :-)

But I bet we could find they gave presents to their children at xmas, rather than investing the Santa money into index linked funds.

"experts recommend placing greater weight on normative than positive issues when determining the SDR, most believe that the SDR should be informed by both": this brilliantly combines the pompous with the fatuous.

Added to which I ask: who the devil can truly be an "expert" on such questions? It's not bloody physics, nor engineering, nor dentistry.

Step back and think: would experts ever agree on the "SDR"? Then, would any government actually follow their prescriptions? The purpose of long term projects is to keep politically connected unions and contractors happy, not to actually build anything in a timely and cost-effective way.

In practice that is the case, but clearly there are an abundance of admissible long term projects.

For my entire adult life I have heard of the "crumbling infrastructure." A cynic could say this is fearmongering to gin up exactly the type of projects to which you refer. But is there no evidence that our existing infrastructure is actually being neglected? I dont know the threshold for which repair to infrastructure is no longer periodic maintenance and becomes a long term project unto itself. I suppose it is defined by how it is financed, operating revenue or bonds.

If the US's infrastructure was actually crumbling, there would be clear and consistent signs of it. The US has 600,000 bridges. 40% are greater than 50 years old. If the infrastructure was failing, you'd expect >1% to have major failings in any given year.

Do you think these values would be confirmed if we used the revealed preferences of their investments?

Shhh! We asked for their Opinions. Not their Beliefs. :-)

It's "Do as I say, not as I do" with these folks. I am already reducing them in status accordingly...

@dearime: " I ask: who the devil can truly be an "expert" on such questions?"

Tsk, Tsk -- we are deluged with professional economists ("experts") who pontificate loudly & endlessly on even the most obscure topics, including economics itself.

Discount rate can be used to teach Intertemporal choice, but I'm not sure anyone doing any serious Intertemporal choices actually uses it in practice.

Either we take our reward now, because our monkey brains say "life is uncertain, you only live once" or we take a more moral and ethical stand that "this is what we should do, for our kids or our old age."

When TC wants people to think about far futures, that is probably more ethics than economics.

Though speaking of intertemporal choice. I am a little confused by TC's ethical bias. It is literally focused more on those far futures than *today*.

Every single person who borrows for and attends college is employing a discount rate to value their expenditures and opportunity costs against their future earnings.

Every one of my clients who save are employing a discount rate.

It's not necessary that they actually enumerate a discount rate, but they act as if they do.

"Every single person who borrows for and attends college"

Even the ones who don't "borrow" are spending their time on a difficult task when they could be out partying. And if your answer is their parents make them do it or pay for it, well then clearly their parents are employing a discount rate.

Ah, but they decide to attend college before, at college, someone tries to tell them what a "discount rate" really is.

Actually, a relatively small subset learn even then.

A discount rate is an explanation of reality. Not knowing what it is called or not understanding the concept doesn't mean you can ignore the consequences.

No. It is a claim of the economist's world view that "a discount rate is an explanation of reality."

Not even a claim, it is a tautology. Do whatever you want, ta-da, that's your discount rate.

Why do I need a non-zero discount rate to justify savings? Passive equity investment has a real return greater than zero. Additionally, I propose a nonlinear relationship between consumption in dollar terms and satisfaction - increasing consumption has decreasing returns. Either one of these would justify saving for retirement even with 0% discount rate.

"Why do I need a non-zero discount rate to justify savings?"

You don't need it for savings. It's for future investment whereby you expect to sacrifice some good today for a larger amount of future goods tomorrow.

"Passive equity investment has a real return greater than zero."


"Every one of my clients who save are employing a discount rate."

Interesting way to say it. The minority of people who save "are employing a discount rate." What about the rest of them?

We all know that Americans as a whole don’t save a lot of money. The latest savings statistics for 2018 shows that the average American only saves ~2.2% of their income a year. In other words, it takes the average American 45.5 years to save just one year’s worth of living expenses. That is a disaster!

Details here:

It turns out that a solid 90% are not saving anything - other than, we hope, building home equity.

(I'll leave the rationality of college loan decisions for another day.)

Everyone that's ever voluntarily attended school or bought a house or a car for work is using a discount rate.

Everyone huh? The English major, still paying college debt, underemployed, leasing a BMW .. he did that because discount rate is just so deeply ingrained in the human organism.

Someone who goes to college to have fun -> high discount rate
Someone who goes to college for future earnings -> low discount rate

I think charles and I are on the same page. Those kids do those things, and they are labeled that way.

The question is whether the label is the mechanism.

If someone becomes lethargic due to a hormone imbalance, do we say their discount rate has increased? Conscious desire and what the body is willing to do are not always aligned. Sleep, reflexes, etc

I'll offer this hypothetical English major $10 today or $10 tomorrow. I'll do this one day a month for a year.

If he has a zero discount rate, then he shouldn't have a preference of today over tomorrow.

So, in your vast experience of human behavior, do you think the results of this experiment would yield either:
a) no preference for today over tomorrow
b) a preference for tomorrow
c) a preference for today

Well, a zero SDR would explain why so many infrastructure projects have such low rates of return.

Politicians might like to argue for a very low or zero SDR if we are talking about global warming or infrastructure. What about if we are computing the NPV of Social Security and Medicare cash flows? Zero real SDR over an infinite horizon? We had better get to work fast on fixing Social Security and Medicare.

More likely the apparent low discount rate is the result of overestimated benefits and underestimated costs by decision makers who benefit from the prestige of large projects and patronage from supporters who build the projects. There is serious moral hazard in the decision making. A short political time horizon also comes into play.

Could there be a tie-in to Global Warming here?

Almost none of the policy responses make any damn sense unless you push the discount rate almost to zero (~0.1% IIRC).

(And even then it fails the Opportunity Cost test)

In the absence of religion and using zero, the suffering of everyone who is living on earth when it is ultimately engulfed by the sun is equally weighted to our experiences today. How do you value that? How do you maximize the utility of those people?
I'm not sure which, if any, religions include non-suffering final days for physical human life.

The utility of non-existent entities should never feature in such calculations. All utility must be in the minds of the living.

What (legitimately) may be featured is "utility we (present) get from imagining the utility of future potential entities".

In fact, even our own future utility shouldn't be counted per se. We should count only "present utility gained from an anticipation of our possible future utility". Of course, this is no practical distinction from 'our future utility', but it avoids the ontological foul-up of ascribing utility to non-existent entities (our future selves).

It's a subtle distinction, but an important one. Don't reify the utility of future selves, potential offspring, distant humanity, unicorns.

The synopsis says: " more than three-quarters finding the median risk-free SDR of 2 percent acceptable."

Hi, all. Many comments here confuse the utility discount rate with the consumption discount rate. These are our findings: "We surveyed over 200 experts to disentangle disagreement on the risk-free SDR into its component parts, including pure time preference, the wealth effect and return to capital. We show that the majority of experts do not follow the simple Ramsey Rule, a widely-used theoretical discounting framework, when recommending SDRs. Despite disagreement on discounting procedures and point values, we obtain a surprising degree of consensus among experts, with more than three-quarters finding the median risk-free SDR of 2 percent acceptable."

Many thanks for clearing that up.

Well, now I know the experts are not direct hypocrites, just victims of gross ontological error.

The "Social Discount Rate" is an invalid concept. It should be called "The Central Planner's Preferred Discount Rate". They appear to assume that "society" has it's own discount rate that exists disconnected from the clearly higher time preference exhibited by individuals. I only see SDR invoked by people who plan to violate the individual rights and freedoms of today's people, to justify their sacrifice for the alleged benefit of future society. I've never seen SDR invoked, for example, to explain why the government should cut Keynesian spending and regulation today to increase the capital accumulation and innovation that will compound future economic growth more quickly to benefit future generations. So zero SDR applied to the question of imagined consequences of global warming, while no calculation or consideration is offered for the myriad negative long term consequences of government interventionism to future generations.

They appear to assume that "society" has it's own discount rate that exists disconnected from the clearly higher time preference exhibited by individuals.

Well, yes. And it is a sound assumption.

If I consider an investment that pays off over a 50 year period my individual discount rate is necessarily influenced - upward - by the fact that I am unlikely to live fifty years, and might not live five.

"Society," acting through government, faces no such possibility, or maybe a very much smaller one.

You're reifying abstract social entities into moral beings and ascribing predicates to them they cannot logically hold. Stop it.


"Alice won't wait until next week, and Bob won't wait until next month, but collectively they should wait until next year" It's incoherent and paternalistic.

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