Re: Lyle's Laws

Robin Hanson (
Tue, 7 Jan 1997 15:01:44 -0800 (PST)

Hal Finney writes:
>From: "Peter C. McCluskey" <>
>> (Hal Finney) writes:
>> >Average this over all market participants and you get the stock price.
>> >.... The result could be that the infinite sum above
>> >diverges! The stock will in fact, today, have an infinite value to you.
>> This assumes the discount rate is unaffected by the explosive economic
>> growth. But what sane person would use a discount rate that is significantly
>> lower than the economic growth rate?
>I was using a different model of the discount rate, where it is a
>psychological measure of the pain inherent in postponing present
>gratification for future reward.

The standard econ view is that market discount rates reflect
*marginal* physchological discount rates. People borrow or invest to
the point where their marginal discount rates are equal to each other,
and to the resulting market rate. Add more investment opportunities,
and the market rate will rise because more people want to invest more
and consume less now. But after people adjust all their marginal
rates will all be the same again. (This assumes no "corner" solution
where people consume nothing in some period.)

Robin D. Hanson