Advances in Management and Applied Economics

Kautilya, Fibonacci and Samuelson on Discounting

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  • Abstract

    The concept of discounting plays an important role in allowing efficient inter-temporal choices. William Goetzmann (2004) claims that Fibonacci (1202/2002) introduced discounting. (i) It is shown that Fibonacci did not understand the concept of discounting or its relevance and his Liber Abaci is a book only of calculations and not of concepts. (ii) It is claimed that Kautilya (4th century BCE) originated the concept of discounting and inter-temporal analysis. (iii) More importantly, relevance of his insight to today’s world is brought out. According to Kautilya, it was possible to reduce the risk premium by making rare disasters rarer. Samuelson (1964) made the same point but Jensen and Bailey (1972) completely missed it.

    JEL classification numbers: B11, B31, G32
    Keywords: Discounting, Inter-temporal analysis, Rare disasters, Risk premium