What situations is simple financial discounting appropriate

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From From Theory and Practice in Policy Analysis, Chapter 7,Financial discounting is a common tool used in accounting to understand the time-value of money. We come across it any time we have to pay interest on a loan or make decisions between different types of investments. Just like some of the other topics in this class, this relatively simple and commonly-used tool has some hidden assumptions. While standard discounting works pretty well to help us make investment decisions, it is unclear if we can apply it to other topics like lives or what kind of a society to leave to our children. Some people argue that standard discounting is the right approach for almost any problem, but others argue that it leads to all sorts of outcomes that many people would find unethical.

In what situations is simple financial discounting appropriate? Is a “real options” perspective better? And in what ways?

Reference no: EM132167439

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