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waveman comments on Against Discount Rates - Less Wrong
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Obviously there's another sort of discounting that does make sense. If you offer me a choice of a dollar now or $1.10 in a year, I am almost certain you will make good on the dollar now if I accept it, whereas there are many reasons why you might fail to make good on the $1.10. This sort of discounting is rationally hyperbolic, and so doesn't lead to the paradoxes of magnitude over time that you highlight here.
Good point.
More generally as per the wikipedia article http://en.wikipedia.org/wiki/Hyperbolic_discounting#Criticism exponential discounting is only correct if you are equally certain of the payoffs at all the different times.
More broadly it assumes no model error. Whatever decision model you are using you need to be 100% certain of it to justify exponential discounting.
Nassim Taleb points out that quite a few alleged biases are actually quite rational when taking into account model error and he includes a derivation of why the hyperbolic discounting formula is actually valid in many situations.
Silent Risk Section 4.6 Psychological pseudo-biases under second layer of uncertainty. Draft at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392310