The discounting and the compounding take account of a fact that a dollar received today is worth more than a dollar received in the future and less than a dollar received in the past. The higher the interest rates assumed and the longer the time periods over which the values are compounded or discounted, the larger the differences between the present values of the losses and the values of the losses at the times that they are estimated to have occurred. The amount of damages can be highly sensitive to the rates of interest chosen. The damage is estimated as of the time of the injury. The award is estimated as of filing of the complaint.
Payment is as of the current or some specified time.
The economist has to chose the appropriate interest rates for converting values from one point in time to another. To select the appropriate rates the economist will have to weigh all the relevant factors of the case and determine the appropriate application of economic or financial theory. In selecting the rates, two overall principles should govern. Although it is most important that the estimate of damages be performed correctly, it is also important that the estimate and supporting analysis be presented clearly and persuasively at trial. To help prepare, the economist should play devil's advocate, evaluating the strengths and weaknesses of the case, hypothesizing how he or she would attack the case, if he or she were on the other side, and preparing appropriate responses.