Question

Value discounting refers to the fact that the percieved value of the reinforcer is less the longer you have to wait for it. See your text for review. Consider the perceived value of getting $100.00 today. Then, consider and tell me how valuable $100.00 would be for you if you got the money tomorrow, 30 days from now150 days from now, or 300 days from now. Consider the shape of discounting functions in your text when answering

Answer 1

Answer:

there is an economic principle that states that 1 dollar today is worth more than 1 dollar in the future, since an invested dollar could earn interests and gain value.

For example, we can assume a 6% interest rate (0.5% monthly interest rate), and using the present value formula we can determine the present value of $100:

• given to us in 30 days = $100 / (1 + 0.5%)¹ = $99.50
• given to us in 150 days = $100 / (1 + 0.5%)⁵ = $97.54
• given to us in 300 days = $100 / (1 + 0.5%)¹⁰ = $95.13

In order to calculate the value of $100 given to us tomorrow, we would need to determine a daily interest rate = 6% / 360 = 0.00017

• $100 given to us tomorrow = $100 / (1 + 0.00017)¹ = $99.98

since the amount of money is not that large and the interest rate is rather low, the difference in value is not that large. But imagine if you used a 24% interest rate instead of 6% (monthly interest rate = 2%)

• $100 given to us in 30 days = $100 / (1 + 2%)¹ = $98.04
• $100 given to us in 150 days = $100 / (1 + 2%)⁵ = $90.57
• $100 given to us in 300 days = $100 / (1 + 2%)¹⁰ = $82.03

as the interest rate increases, the present value decreases.