Discount Rate

Questions

What is Discount Rate?

The Discount Rate converts future costs and benefits into present value. A higher rate makes distant outcomes count for less, which is why the Stern Review's very low rate pointed to urgent climate action, and why rising interest rates in 2022 hit startups with far-off profits.

How do you use Discount Rate?

Use it to make your own assumptions visible: automate savings so your future self gets a vote, picture long-term health costs vividly, and test whether decisions survive a different rate.

When does Discount Rate matter?

Discount Rate is one of the 35 mental models for decisions, the situations where you ask: Which way should I go? Within that, it belongs to “Valuing time and money”, alongside Inflation, Net Present Value and Switching Costs.

What is an example of Discount Rate?

Two stories show it at work: The Stern Review (2006) and SoftBank Vision Fund (2022–2023). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.

Which mental models are related to Discount Rate?

Net Present Value, Compounding Effect and Inflation. Discount Rate itself comes from economics.