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Q&A

What does "individuals discount the future in a constant manner" mean?

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  1. Is the embold phrase referring to Present Value?

  2. But how does Present Value relate to the example below with the "online bookstore"?

AMBIGUITY AND THE FUTURE

Up to now, I’ve said little about how timing affects our reaction to uncertainty. For many decision problems we do not know when the event will be realized; examples include natural disasters such as earthquakes and hurricanes, health problems as a result of prolonged exposure to radiation, and life expectancy itself. How do we behave when faced with such uncertainty? Economic theory assumes that individuals discount the future in a constant manner—that they would prefer risky timing to the equivalent sure timing. [Emphasis mine] Thus, for instance, if an online bookstore announces that it can deliver my order in one to three weeks, I should be unconcerned about the difference between this option and receiving the book in exactly two weeks. However, in reality, people are averse to timing uncertainty—we prefer to know for sure when an event will happen.

Paul Slovic, The Irrational Economist (2010), page 112.

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