Discounting Future Gains and Future Losses: Predictable Differences and Appropriate Measures

This paper extends the common inclination for people to value losses more than gains to the measurement of time preferences. This extension provides testable predictions of a pattern of discount rates that includes use of higher rates to discount the value of future gains than future losses. Two empirical tests, one for differing valuations of future outcomes and the other for varied discount rates, were carried out with results consistent with the predicted pattern of varied rates. The consequent need for the choice of an appropriate measure of the value of a future outcome and the likely shortcomings of most previous time preference tests, are discussed along with implications of the findings for differing saving and lending threshold rates, and determinations of social discount rates.