Changing a single decimal point in a formula for future value can turn a disastrous financial loss into a massive public gain.
The choice of a discount function is often presented as a neutral technical detail in policy analysis. In reality, it is a powerful political tool that determines whether we prioritize today or 50 years from now. Different mathematical structures can completely flip the results of a welfare study without changing a single real-world fact. We trust these economic cost-benefit analyses to be objective guides for government spending. This study reveals that the math is often rigged by the choice of how we value the passage of time.
Discounting as a Distributional Weapon: When Time Structure Asymmetry Reverses Welfare Signs
SSRN · 6730340
Under exponential discounting, when gains and losses have asymmetric time structures — a lump-sum gain versus a perpetual loss — the discount factor β determines the sign of the welfare comparison, not merely its magnitude. This paper characterizes the β-Reversal Effect, proposes a β-Invariance Test to diagnose when welfare conclusions are artifacts of discounting, and shows that quasi-hyperbolic discounting, often invoked as behavioral realism, sharpens rather than resolves the problem. The cho