Monday, August 26, 2019

Do tattoos signal your discount rate?

The NPV theorem (Net Present Value) says that an investment earns more than the opportunity cost of capital required to fund it if, and only if, the discounted stream of profit is positive.  It follows that individuals with higher discount rates will make fewer investments (in education, health, or reputation) than those with lower discount rates.

For many jobs, employers may prefer individuals with lower discount rates as they would invest more in becoming better employees in the hope of earning future promotion.  As a consequence, a signal, even a noisy one, about an individual's discount rate might be valuable to certain employers.

In fact, tattoos may signal high discount rates:
We show that, according to numerous measures, those with tattoos, especially visible ones, are more short-sighted and impulsive than the non-tattooed.
And this has a predictable consequence:
Survey and experimental evidence documents discrimination against tattooed individuals in the labor market and in commercial transactions



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