Quote:
Originally Posted by asquare
user_name, there's actually quite a bit of literature trying to estimate discount rates (recently, hyperbolic discounting has been a big area of research; you might see work by Laibson, Caplin and Leahy, or McCrary). You're right that it's imposible to "know" someone's discount factor, but you can certainly back it out of behavior, given standard assumptions about utility functions and rationality. To parameterize simple models, people often assume b is about 0.95, though of course it's important to do sensitivity analysis around that estimate.
In (graduate level and research) economics, the standard way to express a stream of consumption is U(c(t))+bU(c(t+1))+b^2U(c(t+2))... Since this board is about graduate economics, I think it's a reasonable framework to use  |
I don't think so. Let's remind ourselves that the original purpose of trying to figure out the opportunity cost of 1 year was for
the OP to make the right decision regarding whether or not to pursue an MA. We weren't trying to use advanced economic theory to predict his behavior
exactly (which economists often fail to do anyway). So which is more reasonable: using a crude methodology to get an approximation, or using an advanced methodology to get no results? That is not to mention the advanced methodology may not even be correct because there's a whole set of assumptions behind it. Even if you did get a result, it might not be a better approximation than mine. (Now if you can prove that it's actually a better approximation and find the error bounds, I think that would really be a show of intelligence)
Make no mistakes about it, I'm not trying to propagate anti-intellectualism on this board. But the primary purpose of this board is to assist prospective econ applicants in preparing for grad schools. So the audience consists mostly of people who haven't had graduate training in economics. Yours might not be a reasonable framework to use then.