Discounting

AbstractDiscounting models can account for preference reversals within an economic framework of human agency. This chapter explains discounting theories to a readership not familiar with the econometric or empirical literature. It also qualifies common misunderstandings, such as the claim that exponential models do not allow for preference reversals but hyperbolic models do. The chapter also discusses limitations of orthodox discounting models. For one thing, not all cases of weakness of will involve preference reversals, and even those that do cannot always be accounted for by discounting theory. For instance, they cannot describe weak-willed behaviour in so-called marshmallow cases. The chapter concludes that there is substantial overlap between discounting models and accounts of weakness of will (weak-willed delay discounting), although the two conceptions do not have the same scope.