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the future is now
24
Nov

The future is now – social discounting

discounting-workshopSix of the research group’s PhD students had the pleasure participating in a PhD Workshop on Experiments in social discounting held by Professor Ben Groom. The workshop took place at Antwerp University, which allowed the group having vivid discussions already during the train ride. I personally like the topic of discounting because of its political explosiveness.

So what is discounting? Discounting is a concept that captures the notion that people prefer enjoying benefits now than in the future. Professor Ben Groom presented a very accessible example from an experiment. A kid gets a marshmallow and is explained that if he/he waits with eating it for 20 minutes he/she will get another one. Many things influence a person’s decision over this preference. In economic terms these are usually simplified by the time preference and the elasticity of demand.

While the private discount rate indicates an individual’s time preferences, the social discount rate describes the society’s time preference. This social discount rate is of pivotal importance for all kinds of long term investments by governments. It is exactly in this area where the political explosiveness of social discounting comes in. The higher the discount rate the more we prefer the present over the future. Thus, if a project investing in climate change mitigation is screened by a Cost-Benefit assessment, where future benefits are discounted, the discount rate will decide whether the project is worthwhile or not.

But where do these above mentioned parameters to calculate the social discount rate come from? Some derive it from market observations, some make experiments, some ask experts. Hence, these parameters are not given, but are stated by individuals who base them on certain considerations. By taking part in an experiment, the PhD workshop allowed us to get a first-hand impression of how these parameters are investigated. Discussing each step, we realized that each person has certain ideas in mind when answering questions about a government’s investment. These ideas are not least based on each individual’s attitude, awareness and/or social background. A person with kids that is highly concerned about the state of the environment will answer differently than a person without kids and a more relaxed perspective.

Given the urgency of the environmental problems that we are facing, should we base our investment decisions on attitudes? Should we prefer the present over the future? Should we decide over the fate of future generations who do not have a voice? Personally speaking, seeing the environmental problems that we are facing now due to past decisions, I wish I would have had a say long before my birth. Why should the pleasure of taking a walk in a forest today be less worth than the same pleasure 10, 20, 50 or 100 years ago? Why should the pain of seeing species going extinct now be less worth than the same pain 10, 20, 50 or 100 years ago? Why should I value the future generations benefits lower than mine?

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