Discount function

A discount function is a way to figure out how much something will cost you in the future when you account for the fact that money you have now is worth more than money you'll have in the future.

Let's say your mom tells you that she'll give you $10 in one year. It sounds like a good deal, right? But what if you could take that same $10 and buy something today? Maybe a toy or a treat? Well, the discount function helps you figure out exactly how much that $10 in one year is worth to you today.

It's like playing a game of pretend. If you had that $10 now, what could you do with it? Maybe put it in a piggy bank and earn a little bit of interest, or spend it on something you really want. Whatever you decide to do with it, you'd rather have it now than in one year because having it now means you have more time to play with it or make it grow.

So, the discount function takes into account things like interest rates and inflation rates to figure out exactly how much that $10 in one year is worth to you today. Maybe it's only worth $8 or $9, depending on how much you could earn if you had that money now. It helps you compare different options and make smart decisions about how to spend or save your money.