Where does discount collide?

Discounting is the operation that converts a future cash flow into its worth today, dividing it by one plus a discount rate compounded over the waiting time, so that a dollar promised later is worth less than a dollar in hand. The discount rate itself is the price of time and of risk: it is the return investors require to part with money and to bear the uncertainty of the payoff, and fixing it fixes the present value of any asset. Cochrane's 2011 Discount Rates argued that almost all of the variation in asset prices reflects changing discount rates rather than changing expected cash flows. The referent is an interest-like rate applied to money over time, not a decay in how a person feels about waiting or a markdown on a shop price.[1]

Unit

A future cash flow expressed as present value, using a discount rate per period

Recovery means

As the waiting time shrinks toward zero the discount factor returns to one and present value climbs back toward the face amount

Measured by

Computed by discounting projected cash flows at a rate built from a risk-free rate plus risk premia, as in net present value and discounted cash flow models

Delay discounting is the decline in the subjective value of a reward as the time until its delivery grows longer, so that a smaller reward available now can be preferred to a larger reward available later. The fall is typically steeper than simple compound interest and is well described by a hyperbolic function whose single parameter, k, sets how sharply value drops with delay, with a larger k marking greater impulsivity. Green and Myerson's 2004 review set out this hyperbolic framework for delayed and probabilistic rewards, and Frederick, Loewenstein, and O'Donoghue's 2002 critical review surveyed the wider evidence on time preference. The referent is a psychological devaluation measured in a person's choices, not a market rate applied to cash or a promotional markdown.[3][2]

Unit

The present subjective value of a delayed reward, relative to its undelayed value

Recovery means

Not applicable: the loss of value with delay is the phenomenon itself, not a departure that reverses

Measured by

Estimated from choices between smaller-sooner and larger-later rewards, fitting the discount parameter k and the area under the discounting curve

A price discount is a temporary reduction from a product's reference price, offered as a markdown, coupon, or sale to raise its appeal at the point of purchase. By widening the gap between what a buyer expects to pay and what they are asked to pay, a discount creates transaction value and can lift the perceived acquisition value of the deal and the intention to buy, though a cut that is too deep or too frequent can instead cast doubt on quality. Grewal, Monroe, and Krishnan's 1998 study of price-comparison advertising traced how an advertised discount shapes these value perceptions and behavioral intentions. The referent is a promotional price cut in a marketplace, not a rate that converts future money to present value or a decay in the pull of a delayed reward.[4]

Unit

A markdown from a reference price, as an amount or a percentage off

Recovery means

The reference price tends to drift toward the discounted level when the cut is repeated, eroding the perceived saving over time

Measured by

Assessed by the depth and frequency of the markdown and by its measured effect on perceived value, sales lift, and purchase intention