Microfoundations of Discounting

An important question in economics is how people choose between different payments the future. The classical normative model predicts that a decision maker discounts later payment relative to an earlier one by exponential function of time them. Descriptive models use nonexponential functions fit observed behavioral phenomena, such as preference reversal. Here we propose discounting, consistent with standard axioms choice, which makers maximize growth rate their wealth. Four specifications produce four forms discounting—no hyperbolic and hybrid discounting—two predict Our requires no assumption bias or risk.