Time preference

In behavioral economics, time preference (or time discounting,^[1] delay discounting, temporal discounting,^[2] long-term orientation^[3]) 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.^[1] Applications for these preferences include finance, health, climate change.

Time preferences are captured mathematically in the discount function. The main models of discounting include exponential, hyperbolic, and quasi hyperbolic. The higher the time preference, the higher the discount placed on returns receivable or costs payable in the future.

Several factors can influence an individual’s time preference, including age, income, race, risk, and temptation. On a larger level, ideas such as sign effects, sub-additivity, and the elicitation method can influence how people display time preference. Time preference can also inform wider preferences about real world behavior and attitudes, such as pro-social behavior. Cultural differences can explain differences in discounting as they both have similar underlying psychological influences. The discount rate is also useful in many fields, such as finance and climate change.