Exponential Discounting

Exponential discounting is a way to understand how people value future rewards or outcomes compared to immediate ones. It assumes that the closer a reward is in time, the more it’s valued, but its value decreases at a consistent rate over time. Mathematically, the present value of a future benefit is calculated by multiplying it by a factor that shrinks exponentially as the delay increases. This approach models consistent time preferences, meaning if you prefer $100 now over $110 later, you'd also prefer $100 in a year over a slightly larger amount in two years, reflecting steady patience over time.