Discounting future

lives

Msc HE- Mohamed Ghoneim

Msc HE Health Economic theory

Mohamed
Ghoneim
06/10/15

Msc HE- Mohamed Ghoneim

Agenda
Discounting Definitions

Rules for Discounting

Should we discount lives
Rate for discounting
Conclusion
Discussion

Msc HE- Mohamed Ghoneim

Which would you prefer more?

Having $100 now or
100$ 10 years from
now?
Having $100 now or $
150 10 years from
now?

Msc HE- Mohamed Ghoneim

Factors considered when

discounting

Investments and opportunities

Time preference (people tend to care less about

future utility than current utility).

Uncertainty

Msc HE- Mohamed Ghoneim

5
Conservation Strategy Fund video, www.youtube.com/watch?v=Mol1yT7tcz

Msc HE- Mohamed Ghoneim

Calculations with money seemed easy but

How about lives?

Msc HE- Mohamed Ghoneim

People dying from

Pollution.
2 control programs
costing the same.
There is only enough
money to do one
program.
Program A will save 100 lives now.
Program B will save 7000 lives 100 years from 49%
now.

choose
Progra
mA

Which program would you choose? (A or B)

Cropper, Maureen, Sema Aydede, and Paul Portney (1992). Rates of Time
Preference for Saving Lives, American Economic Review 82, 469-472.

Msc HE- Mohamed Ghoneim

Discounting rules

Value of sequence of outcomes =

sum of discounted utilities in
time t
= discount factor
t= time

Msc HE- Mohamed Ghoneim

2 Crucial questions
Discount
ing

Shall we
discount or not?
If yes with what
rate?
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Conceptual framework for

intertemporal choice
Amount of Future utility

1-
Probability
That something might happen
decreases by time.

Weight given to future utility

Time Preference

- Magnitude
Time may affect the magnitude of
events
- Changes in utility function
the pleasure derived from a unit of
consumption depends on the levels
of recent consumption.

Intergenerational Time
Preference

- Utility from anticipation &

memory
The longer the period, the larger the
pleasure vs remembering good thing
-Opportunity
cost
HE- lives:
Mohamed
Ghoneimfor understanding discounting."Journal
10
Frederick, Shane. "Valuing
future life andMsc
future
A framework
of Economic Psychology27.5 (2006): 667-680.

Msc HE- Mohamed Ghoneim

Cognitive illusion Against

(People see future
pleasures or pain in
Arguments
discounting

some diminished form) or to a weakness of will (people

choose options against their better judgment).1

The mere difference of location in time for something [..] is

not a rational ground for having more or less regard for it
(Rawl)2

Should someone who entirely or largely neglects future

consequences of his actions be called rational? (Becker
and Murphy 1988)3

The government should protect future generations for too

much discounting for their lives(deforestation, global

1-Broome,warming).
1991; Elster, 1986; Jevons, 1871; Lewis, 1946; Pigou, 1920; Ramsey, 1928; Rawls, 1971;
Sidgwick,
2-Rawls, J. (1971). A theory of justice. Cambridge, MA: Harvard Universi
Press.
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Msc HE- Mohamed Ghoneim

Ethical concerns for

discounting
Environmental policies that

affect distant future

generations can be considered
to be altruistic acts.1
Health, unlike wealth, cannot
be invested to produce future
gains2
1- Marglin as cited in Frederick, Shane. "Valuing future life and future lives: A framework for
understanding discounting."Journal of Economic Psychology27.5 (2006): 667-680.
2- http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1116731/
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Msc HE- Mohamed Ghoneim

With discounting utility

The distinctions between the stages of ones life

may be as deep as the distinctions between

individuals.1
The government is responsible only for the
welfare of the current population. Governments
must reflect peoples choices if they will value
future less.
Opportunity costs (spending 1 M for current

project vs future projects)

1-Parfit, D. (1971). Personal identity. Philosophical Review, 80, 327.

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Msc HE- Mohamed Ghoneim

With discounting utility

Assume that :
$100 now save 10 lives
$100 1 year at 10% r
$100 1 year at 10% r

$ 110 save 11 lives

$ 120 save 12 lives

We will always be favoring the future choice unless

both monetary and non-monetary benefits are Discounted

unless their utility is discounted, distant generations become

utility monsters (Nozick, 1974) on whose behalf
earlier generations must be sacrificed in the name of utility
maximization.2

1-Eddy, D. M. (1990). Screening for cervical cancer. Annals of Internal Medicine, 113, 214226.
2- Nozick, R. (1974). Anarchy, state, and utopia. New York: Basic Books.

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Msc HE- Mohamed Ghoneim

How can we discount

lives?
How can you discount pain, suffering,

happiness (intangibles)?
Should we discount with the same as the
market discount rate? Higher? Lower ????

Most analyses, including those who take great care to

measure costs and consequences, pull their discount
rates either out of the air or off the shelf, and the lucky
number is most often 5% (Krahn and Gafni 1993)*
*Krahn, M., & Gafni, A. (1993). Discounting in the economic evaluation of health care interventions. Medical
15
Care, 31, 403418.

Msc HE- Mohamed Ghoneim

Discounting at the market interest

rate
A program for screening cervical cancer life

expectancy by 96 days
Disc by 5% life expectancy By 10 days.
Better approach report the undiscounted

benefits , compare this value to the value of the

future benefits obtainable by investing the money,
and spending it in another program.

Eddy, D. M. (1990). Screening for cervical cancer. Annals of Internal

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Msc HE- Mohamed Ghoneim

Hyperbolic vs constant (exp.)

discounting

= Disc. Factor
K= parameter for degree of
discounting,
t= Time

Read, Daniel (2001). "Is timediscounting hyperbolic or

subadditive?".Journal of risk and
17
uncertainty23(1):

Constant and decreasing timing

aversion for saving lives
Strong evidence against
constant discounting .
They favor decreasing time
aversion.
The findings were replicated
for both private and social
financial choices.
Cairns, John, and Marjon Van der Pol. "Constant and decreasing timing aversion for saving
lives."Social Science & Medicine45.11 (1997): 1653-1659.

Msc HE- Mohamed Ghoneim

70000 budget for hip fracture prevention in

100 women
10 years of
hormone
replacement
therapy (given to
50 year old
women),
prevents
50% of
fractures in
30 years
time

Torgerson, David
J., and James
Raftery.
"Discounting."Bmj
319.7214 (1999):
914-915.

10 years of
calcium and
vitamin D (given
to 70 year old
women)
prevents
30% of
fractures in
10 years
time

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Msc HE- Mohamed Ghoneim

Conclusion

There is almost an agreement for discounting

future costs but for benefits still few authors

argue against it.
Discounting -if done properly- will have a positive

influence on future decision making.

We need to differentiate between intertemporal

discounting and intergenerational discounting.

Discounting benefits with the market rate of

return is unfair in many cases, more effort needs

to be done for calculating of the accurate factor
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Msc HE- Mohamed Ghoneim

Thank you
Mohamed Ghoneim
ghoneim81@yahoo.com

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Msc HE- Mohamed Ghoneim

2 Crucial questions

Shall we
discount
benefits or
not?
If yes with
what rate?

Discount
ing

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