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Kautilya, Fibonacci and Samuelson on Discounting

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  • Balbir S. Sihag

Abstract

The concept of discounting plays an important role in allowing efficient inter-temporal choices. William Goetzmann (2004) claims that Fibonacci (1202/2002) introduced discounting. (i) It is shown that Fibonacci did not understand the concept of discounting or its relevance and his Liber Abaci is a book only of calculations and not of concepts. (ii) It is claimed that Kautilya (4th century BCE) originated the concept of discounting and inter-temporal analysis. (iii) More importantly, relevance of his insight to today’s world is brought out. According to Kautilya, it was possible to reduce the risk premium by making rare disasters rarer. Samuelson (1964) made the same point but Jensen and Bailey (1972) completely missed it.JEL classification numbers: B11, B31, G32Keywords: Discounting, Inter-temporal analysis, Rare disasters, Risk premium

Suggested Citation

  • Balbir S. Sihag, 2017. "Kautilya, Fibonacci and Samuelson on Discounting," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 7(2), pages 1-3.
    • Handle: RePEc:spt:admaec:v:7:y:2017:i:2:f:7_2_3
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    References listed on IDEAS

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    1. William D. Grampp, 2000. "What Did Smith Mean by the Invisible Hand?," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 441-465, June.
    2. William Goetzmann, 2003. "Fibonacci and the Financial Revolution," Yale School of Management Working Papers ysm432, Yale School of Management, revised 01 Mar 2004.
    3. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    4. Robert J. Barro, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 823-866.
    5. Robert J. Barro & José F. Ursúa, 2012. "Rare Macroeconomic Disasters," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 83-109, July.
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    More about this item

    Keywords

    discounting; inter-temporal analysis; rare disasters; risk premium;
    All these keywords.

    JEL classification:

    • B11 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Preclassical (Ancient, Medieval, Mercantilist, Physiocratic)
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals

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