Time preference financial definition of Time preference
time-preference (redirected from 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.