IDEAS home Printed from
   My bibliography  Save this paper

On Depth and Retrospect: “I Forget, and Forgive – but I Discount”


  • Ana Paula Martins


The discounting of future felicity flows transposes to the intertemporal optimization context the assumption of interest-bearing wealth or savings. The validity of the hypothesis has been challenged by several empirical (ir)regularities and by the theoretical implications for human decision processing. In particular, it implies a very special weight of past decisions on current welfare prospects, which appears largely inconsistent with forgetfulness – even if not with learning – and memory effects, often stressed or embedded in behavioral science studies. In this article, we explore the modifications induced by generalizing the typical welfare function in order to accommodate such retrospective influences. The idea is simple – and can be thought inspired in felicity functions encompassing habit formation: to allow for accumulated welfare – of hypothetically “compounded” but also depreciating past-to-current felicity streams – to affect the periodic utility function – which therefore enjoy some durable good properties. Sensitivity of the Ramsey optimal path to the new formulation is also inspected. The mathematical principle has useful production theory applications: in supply chain modelling. Then the optimal depth of a production process stems from a standard problem that now also embeds delay evaluation – discounting; a rationale for a particular pattern of the term structure of interest rates was also forwarded. Growth – general equilibrium - models are extended to allow for the hypothesis.

Suggested Citation

  • Ana Paula Martins, 2007. "On Depth and Retrospect: “I Forget, and Forgive – but I Discount”," EERI Research Paper Series EERI_RP_2007_07, Economics and Econometrics Research Institute (EERI), Brussels.
  • Handle: RePEc:eei:rpaper:eeri_rp_2007_07

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters,in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
    2. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Ana Paula Martins, 2010. "Splitting Games: Nash Equilibrium and the Optimisation Problem," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 53(1), pages 1-28.
    2. William H. Greene & Ana P. Martins, 2002. "Striking Features of the Labor Market," EERI Research Paper Series EERI RP 2002/08, Economics and Econometrics Research Institute (EERI), Brussels.
    3. William H. Greene & Ana P. Martins, 2013. "Striking Features of the Labor Market: Empirical Evidence," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 56(2), pages 25-53.
    4. William H. Greene & Ana P. Martins, 2013. "Striking Features of the Labor Market: Theory," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 56(2), pages 1-24.

    More about this item


    Time Discount; Time Preference; Interest; Retrospect Theory; Durable Goods; Durable Felicity Functions; Vertical Production Systems; Intertemporal Economies of Depth; Supply Chains; Networks; Complexity; Consistency; Term Structure of Interest Rates.;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G00 - Financial Economics - - General - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eei:rpaper:eeri_rp_2007_07. 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: (Julia van Hove). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.