Reasoning the ‘net-present-value’ way: Biases and how to use psychology for falsifying decision models

This paper analyzes the net-present-value (NPV) model, a keystone in economics:Behaviors and lines of reasoning of NPV-minded decision makers are observed and analyzed. As aresult, one finds out that the NPV methodology is biased and its decision makers fall prey tovarious forms of fallacies and inconsistencies. The normative side of the NPV paradigm istherefore challenged by psychological arguments. While the power of psychology in falsifyingmodels and theories from a descriptive point of view is already recognized, it may be the case thatpsychology will prove useful in normative falsification of optimization models as well.