Time Preference and Culture ~ by Ransom

This article discusses how people made decisions and some of the ways culture can affect those decisions.

Time Preference

As stated on InfoGalactic, TimePreference is “the relative valuation placed on a good at an earlier date compared with its valuation at a later date.” If a man's desire for an object or service falls off rapidly the longer he has to wait for it, he has a high time preference. If his valuation drops slowly he has a low time preference.

A dehydrated man will have a high time preference for water (a glass now is worth far more to him than a fifty-five gallon drum two weeks from now). His time preference for a sun hat will be a little lower, but still high. His time preference for a routine meeting with his retirement adviser will be low. What difference will a month make, really?

A man who's temperament leads him to consistently make short-term decisions is said to have a high time preference because near-term rewards consistently outweighs long-term results. A man who's temperament favors long-term planning is said to have a low time preference.

In short, high time preference correlates with short-term thinking. Low time preference correlates with long-term thinking.

Decision Making

What to do and when to do it is an economic decision with many inputs. While temperament is a consistent factor in near- and long-term decision making it is not alone.

Shall I buy a car? New or used? What model? Where shall I live? What shall I eat? Many decisions are weighted in the pursuit of an outcome.

Economics is often presented with the assumption that humans are efficient decision makers who seek to maximize “utility” (the subjective and immeasurable reason we buy and do stuff). However crudely we approximate that idealization it does have merit; we generally try to get more of what we want.

While we think of “what we want” as tied to objects (Car! House! Food!), we are in fact buying those physical objects to obtain something non-physical (Utility! Utility! Utility!). As such an object can create utility for the decision-maker in many ways. A car serves as a wealth signal to inform the decision making of hawtchicks, a means to access experiences (road trip), and access to work, by which we acquire trade tokens to buy stuff with so we can stay alive and get more utility.

An object or service is a single “thing” but it may serve multiple purposes & provide value in multiple ways.

It is important to realize that while decision-making is an economic process the economy involved may have nothing to do with money. Economics is not about money; it's about value. Money is just a convenient accounting vehicle used in the very small corner of decision making that receives the lion's share of coverage.

Culture

Culture means a lot of things but for this article I limit it to the behavioral rulesets of peers, which may serve as a starting point for extrapolation.

A man will make decisions to please himself. If alone, the economy in which he makes those decisions is small. A man in company finds himself with more economic inputs to consider & maximize. He is exposed to more experiences, to the approval (and disapproval) of those into whom he has made investments of time and emotional involvement.

The inputs of a man's peers may change his decisions by providing a different maximum of value. Participation in a car club may sway a man towards a classic rather than a modern vehicle. The car is not simply transportation but also a vehicle for relationship and entertainment.

Time Preference and Culture

Culture can change behavioral choices by adding additional purposes or values to a single object or action.

A man alone needs consider only his own preferences; there is no-one else who's opinion or actions may be of value. The object or action he is weighing is weighed only in relation to himself; it provides value in only so many ways.

A man's company adds new considerations. More than adding mere pluses and minuses, they can superimpose high-time-preference considerations onto low ones.

Consider the matter of diet. Eating well is for most people a long-term consideration with limited short-term payoff. People with a high time-preference will find it easy to embrace the quick hit of that candy bar while heavily discounting the aggregate penalties incurred over time.

A man with a high time preference will thus tend to make poor dietary decisions if left to his own devices.

In the company of other men the consideration can change. If his peers mock or abuse him for poor eating habits this is weighed in his decision making.

But understand this; the abuse of peers does not make him a long-term thinker. The abuse is also weighed in the short term. The man still possesses a high time preference.

The difference is that the new decision to maximum the man's “utility” happens to coincide with his long-term best interests. He is still a short-term thinker – but he begins to behave as if he were thinking in the long term.

The motivations of his peers need not be rooted in long-term thinking either. They may simply enjoy the opportunity to rag on someone who broke a social role. Surely that is a short term pleasure with no long-term consideration. No-one need be thinking in the long term, but the interaction of people with short term interests aligned along social rules results in behavior consistent with long-term thinking.

Extend this mechanism to human interactions at large and we begin to seen something interesting. People's behavior changes as if they were thinking long term, as if their time preference was reduced. Their actual psychological makeup need not change. Only their short-term incentives have shifted.

No-one even need think long term as long as the incentives are correct.

All this relies on the social rules happening to incentivise the same behavior as long-term thinking would select. Change the rules or the situation and the system flies apart under the same forces that had once held it together.

The social rules need not even make sense. They may be entirely artificial and have no rational foundation in the real world. So long as they provide the correct incentives they will work.

Conclusion

As I discussed in a previous article, things that persist generally do so because they are an element of a self-reinforcing system, not because they necessarily “make sense” on their own (and from who's perspective, anyway?).

We often point out that people should think long term. We point out consequences of short-term thinking and agonize over the stupidity of those who practice it. But that's the way people are. Few people are loner cowboys who can make decades-long plans.

Women are not recently slutty. Men are not recently wimpy. These reflect the high time-preference thinking that was always there. People haven't changed. The social rules that provided equally short-term counteractive forces have changed. Pointing out consequences beyond a man's time horizon will not change his behavior because they will not enter in to his calculations.

If this is the way we're constructed why not use it instead of fighting it?

Put less energy into being rational and more into being effective. Don't argue with people; mock and reward them. Fight and have fun. Build community by trying new things (and old things) and weeding out what doesn't work.

On one level this is all an obvious observation. Of course people change their behavior in response to peer pressure. The mechanism by which culture induces or simulates long-term thinking is interesting to me and I hope this insight helps you see the world a little more clearly.