Crossposted from my blog Passing Time

How do we decide how to make decisions about the future?

How we, as a society, decide to answer this question is one of the most important moral quandaries we must face. All too often, questions of morality are focused on the actions themselves in question. The meta-question of how we make decisions across the dimension of time is, in my eyes, just as interesting as what is moral in the first place.

What exactly am I talking about here? Let’s run down an example: You’re given the choice between pressing two buttons: red and blue. The red button saves ten lives today; the blue button saves one million lives in 500 years. Which option should you choose?

An Abrupt Aside on Discount Rates

Discount rates describe the strength of time preferences; discount rates also, separately, describe opportunity costs. Mechanically, you discount future values by a discount rate in order to determine their present value to you today. Commonly, this idea is related to the time value of money; a dollar today is worth more than a dollar tomorrow. If I told you that you could give me $100 today and that I would give you $101 back in one year, you would probably pass on my offer. If so, your discount rate is higher than 1%. If you had a discount rate of zero, I could take your $100 now and you would happily accept $101 in a year (or two years, or ten years since you are not discounting the value of future returns as a function of time) since the proposition would have a positive net present value.

Discount rates are used extensively in business, finance, and public policy to guide decisions and are called, under various contexts, hurdle rates, required rates of return, or the weighted average cost of capital.

Due to my background, I’ve paid more attention to the types of discount rates related to investments, consumption, and goods—the opportunity cost of capital, the hurdle rate, internal rates of return, etc. I use these concepts every day at work, when I’m making personal financial decisions, and when reading about business, finance, or politics. These kinds of financial discount rates, however, are distinct from the (perhaps more interesting) pure rate of social time preference, which is what I will be referring to as a “time discount rate” or “time discounting.”

A time discount rate is the rate at which you value something today ...

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