The Discounted Utility Model

The Discounted Utility Model is a way to understand how people make decisions involving future rewards or costs. It suggests that individuals value benefits or costs less the further away they are in the future. For example, a reward today feels more valuable than the same reward received next year. To account for this, the model discounts the value of future events, reflecting preferences for immediate benefits over delayed ones. This helps explain behaviors like saving money, investing in health, or ignoring long-term consequences, by quantifying how much less future outcomes matter compared to immediate ones.