time-preference

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time-preference

an individual's preference for current CONSUMPTION over future consumption, which determines the INTEREST reward that he requires to persuade him to abstain from current consumption. An individual's time preference will determine the DISCOUNT RATE at which he will discount future money receipts and payments. Individuals differ in their time-preference, some displaying a strong preference for current consumption and being reluctant to save unless very high INTEREST RATES are offered on SAVINGS, others displaying a weaker preference for current consumption and being prepared to save if only modest interest rewards are offered. Market interest rates will tend to reflect the aggregate time preferences of members of the community. However, there may be a difference between private and social time-preferences since individuals, given their limited life spans, will tend to discount long-term receipts and payments heavily whereas the community continues forever and so may take a longer-term view, discounting long-term receipts and payments less heavily See COST-BENEFIT ANALYSIS.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
In economic-speak, when you save your money, we say you have a low time preference. This is the ratio between the value you place on consumption of present versus future goods.
In the first chapter, in addition to presenting an original theory of interest, Machaj focuses his critical ire on the theory of time preference as presented by Bohm Bawerk (Bohm Bawerk, 1930, pp.
In addition, we show how the model can be used to estimate rates of time preference.
In addition, the rates of pure time preference ascertained from surveys vary wildly across individuals and thus provide little guidance for public investment choices.
Rather, as the Austrian economist Ludwig von Mises emphasized, they are a reflection of people's aggregate time preference - or desire for present versus future satisfaction - not a determinant of it.
This note examines the effect of monetary growth on capital using the cash-in-advance (CIA) model with endogenous time preference and establishes a qualitative equivalence.
Instead, he regarded time preference as a necessary condition of interest.
The preference structure incorporates heterogeneity in time preference, varying taste parameters for full-time and part-time work, and the possibility of changes in preferences after retirement.
The authors investigate such policies as discounting and time preference, the elasticity of marginal evaluation and sustainable preferences.
And, yet, the first scenario, engendered by governmental fiscal policy, is analogous to alterations in credit expansion (and contraction), and the second, to "violent fluctuations in time preferences." The first full well deserves the appellation "Austrian Business Cycle." The second does not; it constitutes merely the working out of endogenous changes in taste or time preference in the case under discussion.
A company with a high rate of time preference won't invest unless the payback period is very short.