We study prophet inequalities with discounted rewards, where i.i.d. base rewards are multiplicatively discounted over time. Our main message is that even this structured and arbitrarily weak form of nonstationarity can erase the classical advantage of the stationary i.i.d. setting.
Focusing on single-quantile threshold policies, we show that the competitive ratio transitions from the classical $1-1/e$ guarantee to a fundamental $1/2$ barrier as discounting accumulates over many phases in a canonical regime with a common-decay factor and equal-length phases. We further show that, in the same regime, the $1/2$ barrier persists even for arbitrary stopping rules.
Consequently, i.i.d. base rewards under discounting can be as hard as the fully non-i.i.d. case. On the algorithmic side, we design single-quantile threshold rules that attain the tight bounds by calibrating acceptance decisions to an effective horizon induced by discounting, and we extend this calibration to heterogeneous decay factors and unequal phase lengths.
We further show that a similar discontinuous breakdown persists in an infinite-horizon continuous-decay benchmark, where arbitrarily weak decay collapses the stationary benchmark from $1$ to $1/2$.
Blogger's Review: This paper explores the impact of discounting on prophet inequalities, emphasizing that even slight nonstationarity can significantly decrease algorithmic competitiveness. This finding is crucial for algorithm design, especially in practical applications where reward discounting is common, challenging traditional i.i.d. assumptions.