I have an essay coming up that discusses intertemporal discounting. In it I show that the ideal future discount rate graph in highly uncertain “wild” environments will correspond to what I call “Arcsine Discounting.” Current studies show that we instinctively follow a different future discounting pattern (known as hyporbolic or quasi-hyperbolic discounting). Here is the essence of the essay: pay attention to the near-term and the far-term, but discount the mid-term pretty heavily. The last question you want to pay attention to is “Where do you see yourself 5 years from now?” Instead focus on the very near-term, day-to-day stuff, while keeping an eye much further out for those really high-impact events that have ridden the exploding conditional expected mean of fat-tailed processes.
The discount factor is the black curve below (so my chosen “arcsine” label is actually incorrect). The blue curve is more intuitive because it shows what we have to pay attention to in a world dominated by high peaks and fat tails.
More later.