Discounting, Values, and Decisions
AbstractHow do discount rates affect agents’ decisions and valuations? This paper provides a general method to analyze this question, allowing stochastic and managed cash flows, stochastic discount rates, and time inconsistency and including arbitrary learning and payoff or utility processes. We show that some of these features can lead to counterintuitive answers (e.g., “a more patient agent stops earlier”), but we also establish, under simple conditions, theorems yielding robust predictions concerning the impact of discount rates on control and stopping decisions and on valuations. We apply our theory to models of search, experimentation, bankruptcy, optimal growth, investment, and social learning.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 121 (2013)
Issue (Month): 5 ()
Pages: 896 - 939
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JPE/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Strulovici, Bruno & Szydlowski, Martin, 2012.
"On the Smoothness of Value Functions,"
36326, University Library of Munich, Germany, revised 31 Jan 2012.
- Alexandrer Groves, 2013.
"Identifying What is Tempting,"
pgr489, Job Market Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.