Discounting, Uncertainty, and Revealed Time Preference
Recent studies suggest that direct preferences regarding investment gains and losses may significantly affect people’s behavior in financial markets. The present paper shows that this hypothesis has striking implications for the choice of discount rates in cost-benefit analysis. The paper explores a model in which the future benefits provided by a generic public good—environmental quality—should be discounted at a rate that is close to the market rate of return for risk-free financial assets. This holds true even when the public good has risk characteristics equivalent to those of risky forms of wealth such as corporate stocks.
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World Scientific Book Chapters,
in: THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 31, pages 465-472
World Scientific Publishing Co. Pte. Ltd..
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