Time preference

This article is about time preference in economics. For time preference in psychology, see Delayed gratification.

In behavioral economics, time preference (or time discounting,[1] delay discounting, temporal discounting,[2] long-term orientation[3]) is the current relative valuation placed on receiving a good or some cash at an earlier date compared with receiving it at a later date.[1]

Time preferences are captured mathematically in the discount function. The higher the time preference, the higher the discount placed on returns receivable or costs payable in the future.

One of the factors that may determine an individual's time preference is how long that individual has lived. An older individual may have a lower time preference (relative to what they had earlier in life) due to a higher income and to the fact that they have had more time to acquire durable commodities (such as a college education or a house).[4] As future is inherently uncertain, risk preferences also affect time preferences.[5]

  1. ^ a b Frederick, Shane; Loewenstein, George; O'donoghue, Ted (2002). "Time Discounting and Time Preference: A Critical Review" (PDF). Journal of Economic Literature. 40 (2): 351–401. doi:10.1257/jel.40.2.351. Archived from the original (PDF) on 2017-03-11. Retrieved 2014-11-02..
  2. ^ Doyle, John R. (2013). "Survey of time preference, delay discounting models" (PDF). Judgment and Decision Making. 8 (2): 116–135. doi:10.1017/S1930297500005052.
  3. ^ Hofstede, Geert (2001). Culture's consequences: Comparing values, behaviors, institutions and organizations across nations. Sage publications.
  4. ^ Bayer, Y. M.; Osher, Y. (2018). "Time preference, executive functions, and ego-depletion: An exploratory study". Journal of Neuroscience, Psychology, and Economics. 11 (3): 127–134. doi:10.1037/npe0000092. S2CID 149582921.
  5. ^ Somasundaram, Jeeva; Eli, Vincent (2022). "Risk and time preferences interaction: An experimental measurement". Journal of Risk and Uncertainty. 65 (2): 215–234. doi:10.1007/s11166-022-09394-9. S2CID 219346855.