Time Preference: Knowing It Will Improve Your Perspective
“Be brutally honest about the short term and optimistic and confident about the long term.”- Reed Hastings
Imagine a point where you realize the things you are doing in the present would greatly affect you regardless of any term horizon either short or long term.
Understanding the importance of time preference would help us to think about the decisions and choices that we would make.
Regardless of any age, we could learn this concept and do something that would be worthwhile and not regret or have fewer regrets for us in the future.
Time Preference
In economics, time preference (or time discounting, long-term orientation) 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.
In a simple understanding, we all want to receive something that would make us happy. An example is to imagine the food, shoes, or even accessories that we desire, some of us would easily allow gratification or satisfaction to meet us.
On the other hand, we delay it at the expense of receiving it in the short term because we may know that it would be more beneficial in the longer term.
After all, it depends on the time preference of the person if he or she would immediately receive the thing that he or she desires.
There are two kinds of time preference: low time preference and high time preference. We are all different but understanding these two would help us realize the series of actions that we would make in the longer and shorter term.
High Time Preference
As Tim Ferris quote in his book: The 4-Hour Workweek, “Life is too short to be small.”
The view of the future that is uncertain makes us to think that we do not know what is going to happen in our lives in the next decades.
The term “YOLO” which means “You Only Live Once” is a known acronym that we must live ourselves best in the present moment without worrying what the future lies and do incredible and memorable things that we would never forget.
As a result, having a high time preference: able to receive things that make us happy or going for such an elegant trip because the world is beautiful is a choice or decision to have.
When we observe people with high time preferences, they immediately get the goods that would satisfy them without realizing the long-term impact. Imagine a person eats unhealthy food such as junk foods or sweets. It might be hard to resist but the temptation meets its cravings and eventually would consume it.
It is not only on the foods we consume on a daily basis and the active lifestyle that we may want to do but also the lack of awareness of tracking of expenses that could lead to the negative side in the longer term.
The creation of credit cards might save us if we do not have the cash in our wallets, but if not used well or in a good manner, it could increase our debts and in effect would distress our inner selves.
Too much of anything is bad. — Proverb
With respect to living a healthy lifestyle, we are encouraged also to exercise and move our bodies into action, but the truth is not all of us are disciplined to take care of our health.
There are people who would sit and chill on the couch all the time while watching movies that they want because it is more fun and easier. As soon as this is stacked up to how many years without exercise or active lifestyle, it could possibly lead to dissatisfying health.
These are only a few examples to show the impact of having a high-time preference. It states that life is uncertain as we achieve things that we want and meet it in the short term because we only have a short time to live here on this Earth.
Marsh Mallow Test
There is a study conducted in the 1960s by Walter Mischel where he experimented on children most of them around the ages of 4 and 5 years old and revealed what is now believed to be one of the most important characteristics for success in health, work, and life. An experiment called: The Marsh Mallow Test.
In the experiment, the researcher offered a deal and told the child that he was going to leave the room. The child would be rewarded with a second marshmallow if the child did not eat the marshmallow while he was away. However, if the child decided to eat the first one before the researcher came back, then the child would not get a second marshmallow.
James Clear, the author of Atomic Habits, stated that the choice was simple: one treat right now or two treats later. The researcher left the room for 15 minutes.
The researchers conducted follow-up studies and tracked each child’s progress in a number of areas as the years passed.
The children who were willing to delay gratification and waited to receive the second marshmallow ended up having higher SAT scores, lower levels of substance abuse, lower likelihood of obesity, better responses to stress, better social skills as reported by their parents, and generally better scores in a range of other life measures.
Low Time Preference
After realizing the things that make us happy and their impact by immediately getting the thing that we want, the concept of thinking long-term and delaying gratification could give us a lesson on achieving a future that would be easier and not harder.
In investing for ourselves, the understanding of saving for the future as things are uncertain and we do not know what lies ahead is a good protective nature or mindset.
As discussed earlier, having an unhealthy lifestyle could lead to bad health but if it is managed carefully during the early years in our livelihood, it could prevent us from many diseases in the future.
Almost all the things that we desire give temporary happiness.
The world brought a lot of advertising and marketing on the things that might excite us but its consequences were impactful that a lot of people are not aware of the expenses they are occurring.
To understand that we have a low-time preference, we might achieve a sense of humility because we do not need the things that are shiny to us.
Maybe the only reason, you want to buy is because you want to impress other people, boost maybe your self-esteem, realizing later on that it is only temporary satisfaction. There is a constant upgrade/service from these companies who want us to buy from them.
The ability to say no to things such as attending parties or playing video games because you know that the next day is an exam day are small steps in delaying gratification because you know that it might affect you in scoring the exams.
In this way, the little steps that we believe are positive and attributes to our lives is essential to living a good life because of lowering time preference.
In investing and compounding our money, we realized and understand the impact of inflation as prices of goods are increasing and the decrease of purchasing power. We became more aware of where our expenses and purchases are going. Thus, we track it with attention.
As a result, we want to find ways in achieving things that would benefit us in the future, delaying gratification and working hard combined with luck, opportunities would open to us.
Thinking Long Term
The ability to have high time preference is not a bad way to look at it. Life is fun if we immediately get the things that we want.
As long as we stay present at the moment and questioning ourselves if the things we are getting are beneficial and productive to our life.
The future might be daunting because of how things work in this world. It is better to be able to be prepared for what the future takes and to think of years on how we would save ourselves from the work that we do and currently ask: Am I working productively?
Conclusion
Although it sounds cliché to read or hear the statement, focus and live on the present moment. The ability to be able to understand the impact of time preference and how it could shape our lives for the better is a wonderful choice and decision.
Life would be more different in dealing what is best for your time is an incredible way to be happier and less worried. Enjoy it and be productive together with your family and friends and the people you admire.
As long as, you had understood the concept of time and knowing how to control and delay gratification: leading to low time preference could lead to a healthier and more fulfilling life ahead.
References:
- 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.
- Time Management and Productivity (2020, December 8). What is Time Preference | Explained in 2 min. https://www.youtube.com/watch?v=TYbTo74eKPs
- Clear, J. (n.d.). 40 Years of Stanford Research Found That People With This One Quality Are More Likely to Succeed. https://jamesclear.com/delayed-gratification
- Chin, C. (2021, February 23). What’s Your Time Preference? https://commoncog.com/blog/your-time-preference/
