The Discounted Utility Theory

Discounted Utility Theory explains how people value future events or rewards compared to immediate ones. It suggests that individuals tend to prefer receiving benefits now rather than later, and they assign less value to benefits the further in the future they occur. This "discounting" reflects common tendencies like impatience or uncertainty about the future. The theory uses a mathematical approach to model this behavior, helping to predict decisions involving trade-offs over time, such as saving money, investing, or planning. Essentially, it captures the idea that future benefits are perceived as less valuable than immediate ones, influencing decision-making processes.