Bruce has a personal interest rate (discount rate) of 5% when making decisions, and Alfred has a personal interest rate (discount rate) of 8% when making decisions. Based on this information, we know that Bruce places _____ value on the future benefits & costs of his decisions compared with Alfred.

Question

BlackTom AI · Accepted Answer

Consider what a personal discount rate means in decision making: a higher discount rate makes future benefits and costs less valuable today, because future payoffs are heavily discounted. 
Option: 'the same' — This would imply Bruce and Alfred place equal value on future outcomes. Since Bruce’s rate is lower (5%) than Alfred’s (8%), Bruce actually discounts the future less, so they do not place the same value on future benefits and costs. 
Option: 'more' — With a lower discount rate, Bruce assigns greater present value to future benefits and costs relative to someone with a higher discount rate. Therefore, Bruce places more value on the future compared to Alfred, whose 8% discount rate devalues the future more steeply. 
Option: 'less' — This would be true if Bruce had a higher discount rate than Alfred. In reality, Bruce’s 5% rate means he places less discounting of the future than Alfred, not less value overall; thus this statement is inaccurate. 
In summary, the discount rate governs how much future outcomes are weighted in present decisions, and the evidence shows Bruce’s lower rate leads to greater consideration of the future than Alfred’s higher rate.

Princip of Econ-Microeconomics Quiz 13

Bruce has a personal interest rate (discount rate) of 5% when making decisions, and Alfred has a personal interest rate (discount rate) of 8% when making decisions. Based on this information, we know that Bruce places _____ value on the future benefits & costs of his decisions compared with Alfred.

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