discount rate than the market rate could induce inefficient (in other words, dominated at each period) choices. It will only imply making different choices among the efficient (in other words, undominated) options." 67 They go on to highlight that focusing on one discount rate is misleading, as there is not one single appropriate discount rate for climate investing, but rather as many discount rates as there are distributions of costs/benefits among different populations. 68 We have already seen this phenomenon when the discount rate to be used depends on the time lag between generations. As Frederick et al., (2002) commented 69 : The idea that one can apply the same discount rate to all aspects of a complex project stems from the faulty assumption that the varied considerations that are relevant in intertemporal choices apply equally to different choices and thus that they can all be sensibly represented by a single discount rate. This builds on our earlier discussion of multivocality, whereby the inclusion of multiple stakeholder perspectives helps to inform better decision-making. Therefore, it can be argued that multivocal discount rates could be appropriate to account for varying distribution of costs and benefits across the entire value chain of a given investment, during and beyond the investment time horizon. In summary, we are not advocating that discount rates should be adjusted for all investments, but rather that it may be appropriate for investments that deliver long-term holistic value in the form of financial and non-financial outcomes, i.e., social or environmental, some of which may manifest beyond the traditional investment time horizon. In the context of an estimated $38 trillion annual economic contraction based on anticipated climate-change related damage, a differentiated approach seems justified. As discussed, discount rates can be seen as boundedly rational heuristics shaped by subjective aspiration levels rather than fully optimal cost-benefit calculations. If this is the case, then we can use bounded rationality within our approach to an outcomes-based NPV calculation and adjust the static discount rate, to a dynamic one that better reflects changing preferences over time and uncertainty, as more material information informs our decision-making process. If we assume that agents are aware of scarcity (natural resources), opportunity cost, marginal thinking and trade-offs, amongst other economic principles, then perhaps existing behavioural inertia and traits can support a differentiated approach, such as bounded rationality (operating under constraints and incremental updates) and unbounded rationality 70 (aspiring for optimization based on full knowledge and foresight) working together, especially when accounting for uncertainty with multi-decade forecasting. Specifically, the interplay between bounded rationality and unbounded rationality can lead to a more adaptive and realistic model for long-term financial decision-making. Moreover, this approach recognizes that behavioural inertia 71 - such as the tendency to favour status quo decisions - does not 67 Ibid p. 574 68 Ibid, p. 574 69 Frederick, S., Loewenstein, G. and O’Donoghue, T., 2002. Time discounting and time preference: A critical review. Journal of economic literature , 40 (2), pp.351-401. 70 See Gigerenzer, G. and Selten, R., 2008. Bounded and rational. Philosophie: Grundlagen und Anwendungen , pp.203- 228, Fernando, S. and Burrows, S., 2005. Unbounded rationality: the role of connectedness in right decision-making, Güth, W., 2021. (Un) bounded rationality of decision deliberation. Journal of Economic Behaviour & Organization , 186 , pp.364-372, Shakun, M.F., 2001. Unbounded rationality. Group Decision and Negotiation , 10 (2), pp.97-118. 71 See more at Alós-Ferrer, C., Hügelschäfer, S. and Li, J. (2016). Inertia and Decision Making. Frontiers in Psychology, 7.
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