Rate of Time Preference

Hmmm...you need to mow the lawn. You also want to catch that Zodiac Killer movie starring Ted Cruise before it’s out of theaters. Which will you do now, and which will you do later?

Your answer may reveal your rate of time preference. Time preference is what economists, psychologists, and others call it when someone treats their immediate selves different from their future selves.

In the famous marshmallow test, kids were given one marshmallow. They were told they could eat it now...or, if they can wait and not eat it, they’ll get another one later, and have two. The kids who ate the marshmallow right away, going for immediate pleasure over double rewards, had a high time preference. The kids who were patient enough to earn the second marshmallow had lower time preference. Those kids were able to keep in mind their future selves over just their present-moment selves.

It turns out that this might be an important thing for how the rest of your life goes. The study showed that kids who had the patience to wait for the second marshmallow...with lower time preferences...did better in some areas of life than the kids with higher time preferences.

How do we chart the difference between “high” and “low” rates of time preference? In neoclassical economics, the rate of time preference is a parameter of a person’s utility function. It shows the tradeoffs of consuming something today versus in the future.

Do you have the strength to put off watching the movie, an enjoyable activity? Do you have the strength to not procrastinate a not-so-enjoyable activity, like mowing the lawn? The more impulsive you are rewarding your current self, and the worse you are a procrastinator, the higher your rate of time preference.

Rate of time preference models can be modeled on wider scales, looking at the time preferences of smokers (who know that smoking often leads to cancer), people who aren’t saving for retirement (thinking "I’ll do that later"), and other time-sensitive actions.