Lumifer comments on Open thread, Jul. 18 - Jul. 24, 2016 - Less Wrong

3 Post author: MrMind 18 July 2016 07:17AM

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Comment author: AstraSequi 18 July 2016 06:05:42PM *  1 point [-]

I have some questions on discounting. There are a lot, so I'm fine with comments that don't answer everything (although I'd appreciate it if they do!) I'm also interested in recommendations for a detailed intuitive discussion on discounting, ala EY on Bayes' Theorem.

  • Why do people focus on hyperbolic and exponential? Aren't there other options?
  • Is the primary difference between them the time consistency?
  • Are any types of non-exponential discounting time-consistent?
  • What would it mean to be an exponential discounter? Is it achievable, and if so how?
  • What about different values for the exponent? Is there any way to distinguish between them? What would affect the choice?
  • Does it make sense to have different discounting functions in different circumstances?
  • Why should we discount in the first place?

On a personal level, my intuition is not to discount at all, i.e. my happiness in 50 years is worth exactly the same as my happiness in the present. I'll take $50 right now over $60 next year because I'm accounting for the possibility that I won't receive it, and because I won't have to plan for receiving it either. But if the choice is between receiving it in the mail tomorrow or in 50 years (assuming it's adjusted for inflation, I believe I'm equally likely to receive it in both cases, I don't need the money to survive, there are no opportunity costs, etc), then I don't see much of a difference.

  • Is this irrational?
  • Or is the purpose of discounting to reflect the fact that those assumptions I made won't generally hold?
  • The strongest counterargument I can think of is that I might die and not be able to receive the benefits. My response is that if I die I won't be around to care (anthropic principle). Does that make sense? (The discussions I've seen seem to assume that the person will be alive at both timepoints in any case, so it's also possible this should just be put with the other assumptions.)
  • If given the choice between something bad happening now and in 10 years, I'd rather go through it now (assume there are no permanent effects, I'll be equally prepared, I'll forget about the choice so anticipation doesn't play a role, etc). Does that mean I'm "negative discounting"? Is that irrational?
  • I find that increasing the length of time I anticipate something (like buying a book I really want, and then deliberately not reading it for a year) usually increases the amount of happiness I can get from it. Is that a common experience? Could that explain any of my preferences?
Comment author: Lumifer 18 July 2016 07:00:19PM *  2 points [-]

Couple of things to throw in there.

First, you can empirically observe real-life discount functions that you can, ahem, bet money on. For example, here.

Second, with respect to "my intuition is not to discount at all", let's try this. I assume you have some income that you live on. How much money would you take at the end of three months to not receive any income at all for those three months? Adjust the time scale if you wish.

In general, you can think of discounting in terms of loans. Assuming no risk of default, what is the interest rate you would require to lend money to someone for a particular term?

Comment author: AstraSequi 19 July 2016 05:44:57AM *  1 point [-]

Second, with respect to "my intuition is not to discount at all", let's try this. I assume you have some income that you live on. How much money would you take at the end of three months to not receive any income at all for those three months? Adjust the time scale if you wish.

If I received an amount equal to the income I would have gotten normally, then I have no preference over which option occurs. This still assumes that I have enough savings to live from, the offer is credible, there are no opportunity costs I’m losing, no effort is required on my part, etc.

In general, you can think of discounting in terms of loans. Assuming no risk of default, what is the interest rate you would require to lend money to someone for a particular term?

This is the same question, unless I misunderstood. I do have a motivation to earn money, so practically I might want to increase the rate, but I have no preference between not loaning and a rate that will put me in the same place after repayment. With my assumptions, the rate would be zero, but it could increase to compensate - if there's an opportunity cost of X, I'd want to get X more on repayment, etc.

Comment author: Lumifer 19 July 2016 05:52:31AM 2 points [-]

This still assumes that I have enough savings to live from

No, it does NOT assume that.

Basically you have a zero discount rate for money which you don't need at the moment. How about money which you can use and want to use today, what rate will persuade you to go without?

Comment author: AstraSequi 19 July 2016 06:17:34AM 0 points [-]

That assumption is to make time the only difference between the situations, because the point is that the total amount of utility over my life stays constant. If I lose utility during the time of the agreement, then I would accept a rate that earns me back an amount equal to the value I lost. But if I only "want" to use it today and I could use it to get an equal amount of utility in 3 months, then I don't have a preference.

Comment author: Lumifer 19 July 2016 03:42:08PM 1 point [-]

because the point is that the total amount of utility over my life stays constant.

I don't think this is a useful approach. A major component of time preference is the fact that future is uncertain.

If you set up the situation such that there is basically no difference between the future and the present (both are certain, known, you yourself don't change, etc.) then yes, reshuffling utility between two otherwise identical points on a timeline is something you could well be indifferent to. However that's very far away from the real life and I thought we were talking about something with practical applications rather than idealized abstractions.

Comment author: AstraSequi 21 July 2016 03:31:15AM 0 points [-]

It actually does have practical applications for me, because it will be part of my calculations. I don't know whether I should have any preference for the distribution of utility over my lifetime at all, before I consider things like uncertainty and opportunity cost. Does this mean you would say the answer is no?

Comment author: Lumifer 21 July 2016 04:40:47AM 0 points [-]

I would say that before your current needs, uncertainty, opportunity cost, and changes in yourself the answer is debatable, that is, I can see it coming down to individual preferences.

But I still don't see practical applications. For actual calculations you need some reasonable numbers and I don't see how you are going to come up with them.

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