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Discounting in an Uncertain World - Disentangling the Debate on the Weitzman-Gollier Puzzle

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  • Wolfgang Buchholz

Abstract

Under conditions of risk it makes a difference whether the discount rate is determined as an expected present or as an expected future value. This difference which is dubbed as the Weitzman-Gollier puzzle has stimulated an intensive discussion which, however, is somewhat confusing. In this paper we try to provide some clarification by separating the different topics of the debate. In particular we give an intuitive explanation for the divergence between the outcomes of the present and the future value approach. Moreover, we show that a declining time patter of the discount rate which is the major implication of Weitzman’s present value approach can also be obtained in many other and more appealing ways.

Suggested Citation

  • Wolfgang Buchholz, 2014. "Discounting in an Uncertain World - Disentangling the Debate on the Weitzman-Gollier Puzzle," CESifo Working Paper Series 4967, CESifo.
    • Handle: RePEc:ces:ceswps:_4967
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    References listed on IDEAS

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    More about this item

    Keywords

    cost-benefit analysis; discounting; risk; Weitzman-Gollier Puzzle;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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