Topic

Discounting

Discounting converts costs and health effects that occur in the future into present values, reflecting a general preference for benefits sooner and costs later. The rate chosen, and whether costs and health share the same rate, can change the result of an evaluation.

Concepts in this topic

• Age WeightingAge weighting values a year of healthy life by the age at which it is lived, as in the original GBD DALY, which gave years in young adulthood most weight.
• Differential DiscountingDifferential discounting applies a lower annual discount rate to future health effects, such as QALYs, than to future costs in an economic evaluation.
• Discount RateThe discount rate is the annual rate, such as NICE's 3.5%, used in economic evaluation to convert future costs and health outcomes into present values.
• Discounting CostsThe application of a discount rate to future costs within an economic evaluation, converting them into a common present-day value.
• Discounting HealthThe application of a discount rate to future health outcomes within an economic evaluation, converting them into a common present-day value.
• Future ValueThe value a present sum of money will grow to after a specified period, given a particular rate of return.
• Hyperbolic DiscountingHyperbolic discounting is time preference in which the discount rate falls as delay grows, so plans made for later are often reversed when the time comes.
• Present ValueThe current worth of a future sum of money or cash flow stream, found by discounting each future amount using a specified discount rate.
• Time PreferenceTime preference is the preference for benefits sooner and costs later; in health economics it is one reason future costs and QALYs are discounted.