time-preference

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.
References in periodicals archive ?
Braun's chapters on the time-preference theory of interest will meet the most resistance.
Braun states the traditional pure time-preference theory (PTPT) of interest as one comparing present goods with future goods.
Such a time-preference rate applied to the decision to exercise would lead the rational consumer to refrain from exercising more than a few minutes per week.
Exercising as much as 4 hours per week implies a time-preference rate close to 1%.
Abstract: Ludwig von Mises advocated a pure time-preference theory of interest.
Mises adopted Menger's theory of value, developed certain elements of Bohm-Bawerk's and Frank Fetter's theories of time preference (while rejecting their wider frameworks), and drew upon his own rationalist epistemology of praxeology to construct a highly original pure time-preference theory of interest.
For example, the highly influential Austrian time-preference approach to the phenomenon of originary interest (or profit), as originated again in the work of Bohm-Bawerk and brought to perfection in the writings of Fetter, Mises and Rothbard, is shown to be completely inadequate to both furnish a coherent explanation of the phenomenon of interest and remain consistent with wider conditions of the market (pp.
For the sake of greater accuracy and to avoid confusion, it is necessary to make clear that Reisman regards the concept of time-preference as such as the "second major principle of valuation that closely bears on the subject of scarcity.
More self-control and more self confidence seem to go with a lower rate of time-preference.
Each individual, on the basis of his time-preference schedule, decides between the amount of his money income to be devoted to saving and the amount to be devoted to consumption.
While theirs is partly a derived demand--the time-preference aspect being ultimately determined by original factor owners--the borrowers' schedules differ between short- and long-term loans as a result of their entrepreneurial function, and because uncertainty for borrowers is higher on shorter loans.
Although the authors consider the pure time-preference theory of interest (PTPTI) to be the valid theory of interest, the focus here will be on two arguments in favor of it that we consider problematic.

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