Discounting Gnomes

I hate it when the gnomes steal intangible objects - like an hour of my day. Freaking thieving gnomes.

I decided to test an economic theory - well, I guess it's more like an almost assumption - today on some high schoolers. In economics we do something called "discounting the future." This centers around an assumption that consumption (really utility, but they're somewhat interchangeable in economics) today is worth more than consumption tomorrow. So, for example, if you were to postpone consumption today, you would have to be compensated by more consumption at a later date - and how much more consumption you would require is the discount rate. This is very easily seen in things like investments. If there was no interest rate - or if it isn't high enough - very few people would invest money.

Anyways, I tested this as simply as I could, by first asking four teenagers if they would rather have a brand new computer today, or the same brand new computer a year from now, but for 10% cheaper. Of course, I had to add some corallaries that technology will not improve for any computer over the next year. Half said they would take it today and half said next year. But the problem with this situation is that some had functional computers, while others had much less functional computers.

So I decided to change the consumption to something that would be completely used up at the time of consumption and is a luxury item - a nice dinner out. Of coruse, I had to shorten the time period, so I asked if they would rather go out to their favorite eating establishment today at full price, or a week from today and get $20 off. Again, half said today and half said next week. I'd be really intrigued on seeing if discounting is different among age groups, and if different goods bring about different discount rates.

Because something about discount rates just doesn't sit right with me, but I can't really figure out what it is. In Macro we're talking about intertemporal budget constraints, and how, if you could figure out exactly how much money you would make in your life and when, you would end up consuming the same exact amount of money every time period. But that obviously isn't the case with me. My consumption is way down while I'm in school, but it doesn't have to be. I have a lot of loans available to me, which would dramatically increase my consumption now at the price of paying it back later when I have a greater income, but I don't take advantage of it.

So I guess I'll keep asking questions and thinking about discount rates, and maybe (if I'm lucky) I'll figure out a Master's Thesis topic on the way.