14.6 Conclusion

Deciding how to invest and whether to invest remains one of the central issues of any business and a great many individual decisions, too. To make such decisions rationally, there must be a way to compare future payoffs to current costs, and to make that comparison, you need to use the interest rate and discounting.

When investments are risky, there is an additional layer of complication that requires you to know how to quantify risks and compare payoffs and costs. Given the way most people value income, individuals are often especially sensitive to risks and that characteristic is the foundation of most insurance markets.

We’ve only scratched the surface of these issues here. If we’ve piqued your interest, the field of finance deals with the issue of how time and uncertainty shape various markets.