One of the big things I’ve been thinking about the past few months has been the concept of high and low time preferences. What are high and low time preferences? Put simply, it is a preference between short and long-term thinking, planning and decision making. It’s the difference between wanting quick gratification and results, and being able to think more systematically and broadly.
In particular, my focus in terms of time preference has been related to finances, investment and spending. This has coincided with having a new job which affords the ability to think longer term. For the first time, I am thinking seriously about learning about investing, creating an investment portfolio and thinking of my financial decisions on a timescale of years and decades as opposed to weeks and months. Of course, going from a situation where I have been forced to think mostly short-term to being able to think on a longer time scale has taken some adjustment.
It’s not been easy to make such an adjustment, beside the increased capacity to do so. At present, so much of our society is geared toward high time preferences, wanting to act immediately and attain immediate results. Think of our spending habits, for instance. Saving is not incentivised nearly as much as immediate spending and going into debt. There is a tremendous amount of social pressure to spend in a way that emphasises social status, no matter whether it’s affordable or not. Wanting to live frugally is often derided or seen as unusual.
In the political sphere, decision making, when it is actually done, is mostly reactionary, based on the topic du jour and the latest opinion polling. At most, planning is done based on the 3 or 4 year election cycle, and big decisions requiring thinking decades into the future is largely ignored. Similarly, our institutions largely fail to think long term and anticipate trends and changes, opting for just-in-time fixes over preventative measures and astute planning.
While I am thinking with a lower time preference in general than what I used to, I do of course acknowledge this isn’t always possible or ideal. Sometimes, decisions need to be made right now and action taken immediately. It’s not possible to live while solely focused on the future. As much as anything, thinking with a lower time preference helps to make me more aware of the tradeoffs I make with the decisions I make and reflect on the principles and thinking that led me to those decisions.
One of the questions that continually interests me and that I keep coming back to is – how do we as a society place more of a value on a low time preference, and to strike more of a balance between short term and long term thinking? It’s a very tough question to solve, but it is an essential issue to tackle to sustain ourselves on a longer time scale.
Scott Davies 