A beautiful illustration of time preference.
Source link: http://archive.mises.org/17979/time-preference-and-marshmellows/
Time Preference and Marshmallows
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Praxeology at its finest.
Having reflected on my own time preferences and that of others, I conclude not all activities or environments require a low time preference. In fact, to do so could be detrimental to one’s success.
In addition, if two thirds of the population has high time preferences then it does no good for the rest of us to respond to them as if they have a low time preference.
I thought the sales example at the end was a poor example because good sales people know that most people have high (short) time preferences and sales run on short time preferences… (“better buy it now while it’s on sale”… “this offer won’t last”) is often the words you hear from a sales person or advertisement.
People generally have different time preferences depending on the activity. For example, someone could have a low time preference when it comes to relationships (monogamy) but a high time preference when it comes to money (overuse of credit). Moreover, time preferences aren’t static. Though many variables may account for this, age is the easiest one to observe.
Of course, how can we expect people to embrace low time preferences when our current economic system and system of government is founded on high time preferences?
That is more a case of the seller’s high time preferences, he wants to sell now. It’s the seller’s fault not the buyer. I usually wait to have the money to buy something, I am allergic to debt. I have high time preferences in food and I don’t buy luxuries like plasma tv’s or sports cars or pools, I don’t even have pets. I find that freedom is much more important than consumption. The freedom to wakeup at the hour I want and to walk outside all day long doing nothing is for me the most valuable thing. I owe nothing to nobody. I’d rather do without and live only on basic necessities than having a boss in order to pay for all useless junks.
I’m not a big fan of the Tuckerian Jetsons’s world because you have to work and be subservient to a cigar toting jerk boss that gets in your face all day in order to pay for all those gadgets. Jeffrey Tucker, in his book, forgot to mention that in order to enjoy all the gadgets and comforts of the Jetsons’s world, you have to endure the arrogance and grouchiness of your greedy boss that won’t let you have a minute for yourself and invade even your free time, calling you home or on vacation to report for duty or to perform distanced work.
I’m a big fan of voluntary simplicity which sets you free from unnecessary employment.
“I thought the sales example at the end was a poor example because good sales people know that most people have high (short) time preferences and sales run on short time preferences… (“better buy it now while it’s on sale”… “this offer won’t last”) is often the words you hear from a sales person or advertisement.”
I have just one problem with the concept of time preference.
For example, a person who is saving money in order to purchase a sports car, one could say that he has a low time preference because he is not buying the car right now, he is waiting to have the money necessary to buy the sports car and according to his calculations it will take 10 years.
If this person would claim that he has a low time preference, I think it would be a bit hypocritical because if he could have the sports car right now he would take it but the problem is that he doesn’t have the money.
I think it has nothing to do with time and everything to do with money. If he refuses to borrow money in order to buy the car right now, it might have nothing to do with time and everything to do with sound money management and not wanting to be a debt-slave.
Also, what about those who find gratification in being instead of having. What if developing math skills, physics skills, gymnastic skills. In that case, the time it will take for you to become proficient in the skillset you wish to acquire is not entirely under your control. The pace of progress will depend also on your intelligence and the amount of time and resources you can dedicate to become skillful in what you want.
In order for a person to genuinely have a low time preference he would need to already be filthy rich and have a lot more money than necessary but decide not to buy the good or service right away.
How about this:
* A person who saves money in order to buy a car delays his current consumption (he does not spend the money straight away) and for doing so, he gets the reward of a car in future.
* A person who has enough money to buy a car he wants delays the purchase and instead loans the money saved in order to purchase even better car in the future
Re: Pride and Dignity,
What’s so hypocritical about opportunity costs, P&D? If somebody handed me a bag with $100,000 bucks, why would I bother then to save $100,000.00?
You’re totally misunderstanding the concept. It has nothing to do with proving something to YOU, it has to do with forgoing present consumption for future consumption, the present level of wealth notwithstanding.
I don’t think it’s instant vs. delayed gratification as much as it is about saving. If you save, in the long run, you will get more and you also get more gratification. If you save the marshmallow, you get two and if you save those, you may get more, depending on the conditions and rules. Plus you can invest your extra marshmallow in building something, say a relationship where two people can have gratification from that which gave instant gratification to only one.
Are there times when you should yield to temptation? “Eat, drink and be merry for tomorrow you may get more” – and maybe you will get nothing.
A case could be made that high time preferences are instinctual and genetically ingrained. If you look at survival, say man 15,000 years ago, animals in the wild, or a stray dog it is easy to understand why high time preferences exist in the first place.
The incentive for high time preferences is metabolically motivated by a need to satisfy a low time preference. In all three examples, high time preferences are preferred because the resource (in this case food) is extremely scare. When I say scarce… it is scarce in the sense it is not easily attainable in terms of time and effort. Thus, immediate metabolic needs are a precursor for the body to operate on a low time preference.
By consuming the food immediately, the body is able to store energy (especially fat calories) that is distributed over many hours, days, or weeks in the effort to find new resources (food). Extreme examples of high time preference consumption for low time preference purposes are carnivores like snakes and bears preparing for winter hibernation. Interestingly, the Paleo diet is based on a similar premise. http://en.wikipedia.org/wiki/Paleolithic_diet http://www.archevore.com/archevore/
Low time preference requires two things: Resources that do not lose value quickly (or perishable in the case of food) and a place to secure these resources (e.g. refrigerator).
From this perspective, low time preference is a learned behavior and only makes sense under certain conditions.
(Henceforth, yielding to temptation is the body’s way of securing and storing energy for a low time preference need. Thus, “Eat drink, and be merry for tomorrow we may get more” … is a natural, metabolic response.
And why we have so many obese people in this country. And obese in several of its connotations.
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