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posite. Thus, if we allow the market interest rate to determine the discountrate, there would theoretically be an inverse correlation between discountrate and economic growth, the exact opposite of what would justify the“richer future” rationale for discounting.Chapter 16 Distribution • 319Box 16-4Discounting, Psychology, and EconomicsEconomists argue that economics is the science of human preferences,so human preferences must be respected. If people value the presentmore than the future, we must respect that. The question is: Do peopleexponentially discount the future? While it is true you may prefer to havesomething now rather than the same thing in 5 years, how do you valuesomething that happens 100 years in the future compared to 105 years?If you heard that global warming was going to result in the deaths of 50million Bangladeshis in 125 years, would that make you feel only half asbad as finding out it would actually kill those 50 million Bangladeshis in100 years? If you are like most people, you would feel equally bad in eithercase, yet influential economic models of the impacts of globalwarming really do assume we would care only half as much about thosedeaths if they occurred 25 years later.Empirical studies show that people do discount the future but do notdo so exponentially. We might give more weight to what happens nowthan to what happens in the near future, but we are nearly indifferent betweenthe same outcome occurring at different times in the more distantfuture. One approach to modeling this type of behavior mathematically isknown as hyperbolic discounting. While this precise formulation of intertemporaldiscounting may not be perfect, evidence suggests it is farmore representative of human preferences than exponential discounting.While the approach was first introduced over 30 years ago and hasgained increasing attention in the last few years, it is still fairly rare tosee it in use.An increasing number of studies in the area of Behavioral Economicsare finding that the traditional economic assumptions of human behaviorare often seriously flawed. If economics is serious about becoming thescience of human preferences, it would do well to pay more attention tohow humans really behave. aa For a good introduction to the field of Behavioral Economics, see R. Thaler and C. Sunstein.Nudge: improving decisions about health, wealth, and happiness. Yale UniversityPress, New Haven. 2008.Finally, many economists argue that technology is the driving force foreconomic growth. Not only does technology ensure we won’t run out ofresources and the economy won’t stop growing, but it offers yet anotherreason to discount the value of resources in the future. Technology islikely to develop substitutes for natural resources. When these substitutes