Discount function

From Wikipedia, the free encyclopedia
Jump to navigation Jump to search

A discount function is used in economic models to describe the weights placed on rewards received at different points in time. For example, if time is discrete and utility is time-separable, with the discount function having a negative first derivative and with (or in continuous time) defined as consumption at time t, total utility from an infinite stream of consumption is given by


Total utility in the continuous-time case is given by

provided that this integral exists.

Exponential discounting and hyperbolic discounting are the two most commonly used examples.

See also[edit]


  • Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," ;;Journal of Economic Literature;;, vol. 40(2), pages 351-401, June.