data analysis cost and benefit analysis of a system
Cost–benefit analysis
The choice of discount rate is subjective . A smaller rate values future generations equally with the current generation . Larger rates ( e.g. a market rate of return ) reflects humans ' attraction to time inconsistency -- valuing money that they receive today more than money they get in the future . The choice makes a large difference in assessing interventions with long - term effects . One issue is the equity premium puzzle , in which long - term returns on equities may be rather higher than they should be . If so then arguably market rates of return should not be used to determine a discount rate , as doing so would have the effect of undervaluing the distant future ( e.g. climate change ) .
The choice of discount rate is subjective . A smaller rate values future generations equally with the current generation . Larger rates ( e.g. a market rate of return ) reflects humans ' attraction to time inconsistency -- valuing money that they receive today more than money they get in the future . The choice makes a large difference in assessing interventions with long - term effects . One issue is the equity premium puzzle , in which long - term returns on equities may be rather higher than they should be . If so then arguably market rates of return should not be used to determine a discount rate , as doing so would have the effect of undervaluing the distant future ( e.g. climate change ) .