Discounting, Values, and Decisions
How 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.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bruno Strulovici & Martin Szydlowski, 2012.
"On the Smoothness of Value Functions,"
1542, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:doi:10.1086/673867. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.