Discount Rate in Damages
The interest rate used to convert a stream of future damages into a single present-day dollar figure.
The discount rate is the assumed rate of return an injured party could earn by investing a lump-sum award, and it is the mechanism used to convert years of future lost earnings or future medical costs into one present-value number. A higher discount rate produces a lower present value, because it assumes the money will grow faster if invested now, while a lower rate produces a higher present value.
Experts commonly anchor the discount rate to a low-risk investment benchmark, such as government bond yields, on the theory that a damages award should be treated conservatively rather than assumed to be invested in higher-risk, higher-return assets. Some jurisdictions instead require a net discount rate, which nets the assumed investment return against an assumed wage or medical cost growth rate, collapsing two competing assumptions into one net figure.
Juricratic exposes the discount rate as one of the highest-leverage sensitivity dials in any future-damages model, because small changes in the rate compound over a long projection horizon and can swing the present-value total by a large percentage even when every other input stays fixed.
PV = FV / (1 + r)^t
How it actually shows up
Economic experts select and defend a discount rate assumption in expert reports and at deposition, and litigators run the opposing expert's rate against their own to bracket the range of defensible present-value outcomes before mediation or trial.
- What is the discount rate used for in damages calculations?
- It converts a future stream of damages, such as lost future earnings or future medical costs, into a single present-day dollar amount by accounting for the time value of money.
- How is the discount rate chosen?
- Experts typically use a rate tied to a safe, low-risk investment benchmark, sometimes netted against assumed wage or cost inflation, and the specific rate is often a contested issue between opposing experts.
- Does a higher discount rate help the plaintiff or the defendant?
- A higher discount rate produces a lower present value of future damages, which generally favors the defendant, while a lower discount rate produces a higher present value, which generally favors the plaintiff.
This page is an educational explainer, not legal advice, and creates no attorney–client relationship. Juricratic is a simulation engine: every probability-like figure is a dial you set, not a calibrated prediction. Verify every rule, deadline, and figure against the authorities and orders that govern your matter.
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