Time preference
Intuitively, time preference describes the preference for present
consumption over future consumption. It is a key concept underlying the
theory of intertemporal choice. The strength of this
preference is measured by the rate of time preference or, equivalently, by
a discount factor.
An number of studies have shown that the standard theory of intertemporal choice
is frequently violated in experimental settings, just as standard (static)
expected utility (EU) theory of choice is systematically violated. The main findings
of such experiments are (see Camerer 1995, pp. 649-51):
Implicit discount rates decline with time horizon (formally, this implies that
discount rates are hyperbolic rather than exponential);
discount rates are larger for gains than for losses of equal magnitude;
people demand more to delay consumption than to speed it up.
How alternative models of intertemporal choice (such as hyperbolic discounting) can be
incorporated in applied economic research is an important field of current research.
See also:
intertemporal choice
Literature:
Ahlbrecht & Weber (1995),
Camerer (1995),
Fishburn & Rubinstein (1982)
Entry by::
Joachim Winter
