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Planet Money

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Business, News & Politics

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The economy, explained, with stories and surprises. Imagine you could call up a friend and say, "Meet me at the bar and tell me what's going on with the economy." Now imagine that's actually a fun evening. That's what we're going for at <em>Planet Money</em>. People seem to like it.

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#388: Putting A Price-Tag On Your Descendants

July 20th, 2012

Episode 496 of 910 episodes

Given a choice between $50 now and $100 in a month, many people would take the money now. But offered $50 in a year, or $100 in 13 months, they'd wait the extra month to double their money. The lesson: People have a "present bias," says Frank Partnoy, a professor of law and finance at the University of San Diego. "So people have more impatience in a one-month time period than they do in a one-year time period." This turns out to have immense implications for public policy — implications that add up to many trillions of dollars over time, and mean the difference between valuing the lives of future generations at a few pennies, or hundreds of billions of dollars. Consider: If it would cost several trillion dollars to save Los Angeles from being wiped off the map by massive floods that are likely to occur only once every few hundred years, is it worth it? The answer hinges on the discount rate — the rate you use to size up future costs.

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