Notes on Time Preference

JW Rich
9 min readMar 23, 2023


The concept of “time preference” is crucial to the study of economics. The concept itself — of preferring present satisfaction to future satisfaction — is not just a common feature of human psychology, but ingrained in the Praxeological framework of the human mind. Human beings act; they utilize means for the attainment of ends. The ultimate motivation behind action is what Ludwig von Mises referred to as “uneasiness”. While this term might indicate that action is the result of some kind of emotional or particular mental state, that isn’t the case. Emotions can and often do accompany action, but “uneasiness”, in the Misesian meaning of the term, refers to a Praxeological state — one where an actor believes that the future state of events will not align with his desires. In order to change — or at the very least, influence — these future outcomes, he acts.

The idea of time preference is embedded in these facts alone. The presence of action also implies the presence of time. Otherwise, there would be no future to aim at altering, or any time for an actor to alter it. Action is therefore a necessarily chronological concept. This implies that uneasiness too is chronological in nature. Actors feel uneasiness not in some amorphous sense or in a one-time burst, but over a period of time. Action aims at alleviating uneasiness. Because uneasiness is inherently undesirable, and action is a chronological concept, we can conclude that action is aimed at alleviating uneasiness as soon as possible. This principle of action is, in essence, the principle of time preference.

While Mises doesn’t advance in the same step-by-step fashion to reach this conclusion, his argument is essentially identical to the one above:

“The answer to this question is that acting man does not appraise time periods merely with regard to their dimension. His choices regarding the removal of future uneasiness are directed by the categories sooner and later…Time preference is a categorical requisite of human action. No mode of action can be thought of in which satisfaction within a nearer period of the future is not — other things being equal — preferred to that in a later period. The very act of gratifying a desire implies that gratification at the present instant is preferred to that at a later instant.” (Human Action 480–481)

While Austrian literature has traditionally placed a great deal of emphasis on the subject of Price Theory, especially as an extension of Praxeological reason — this analysis has rarely been extended to the subject of time preference. For example, let’s suppose that an individual has the following value scale:

- First apple today

- Second apple today

- Two apples next week

- Third apple today

- Fourth apple today

In this value scale, the highest value is placed on the first apple received today. The next highest value is placed on an apple received next week, and so on. If an individual with this value scale was in possession of three apples and was offered to either receive one additional apple today (the fourth apple) or instead receive two apples next week, which would he choose? Because two apples next week are placed in a more elevated position on his value scale, we can surmise that he would rather have the two apples next week than the additional apple today.

We can also adjust this scale according to how greatly the individual values the future. In other words, how “high” or “low” his time preference is. The following value scale would be an individual with a very “low” time preference:

- Ten apples in a month

- Four apples in a week

- First apple today

- Second apple today

- Two apples tomorrow

- Third apple today

This individual values receiving apples in the present lower than many of his options in collecting future apples. For example, if he was given the option between one apple today or ten apples in a month, he would select the apples a month from now. This shows a relatively high willingness to wait to receive satisfaction in the future. This value rankings could also be reversed, placing the present apples over the future apples. This would represent a “high” time preference, which is characterized by a relatively stronger preference for present over future consumption.

If we wish to use this same framework in a more practical context, “apples” can be replaced with “money” and “future apples” with “rates of return”. For example, an individual might have the following value scale:

$10,000 invested for 10 years with 15% return

$10,000 invested for 8 years with a 10% return

$10,000 invested for 2 years with a 4% return

$10,000 invested for 4 years with a 6% return

$10,000 invested for 6 years with a 8% return

For this individual, they place a higher value on longer investments with higher returns than on shorter investments with lower returns, which reveals a relatively low time preference. If instead the 2-year and 4-year investments were at the highest points of the value scale, then that would indicate a relatively higher time preference instead.

For all of this talk about “time preference”, there is a further point that needs clarification: strictly speaking, there is not one unified “time preference”. This point is often obfuscated by the language used to describe time preference in the first place. In Austrian contexts, time preference is often described as the preference for “present satisfaction” over “future satisfaction”. While true, it should be emphasized that this is only an abstraction. While still useful for speaking about time preference in general, it should be emphasized that there is no such thing as “satisfaction” apart from specific means and ends. It does not exist amorphously in the ether, but only in specific forms. Therefore, what we describe as “time preference” is actually just the amalgamation of an individual’s willingness to wait for different goods and services in the future.

This means that individuals might have low time preferences when it comes to satisfying certain ends, but much higher time preferences for others. They might be willing to wait a long period of time to receive Good A, but only a short amount of time to receive Good B. We can see examples of this imbalance at work in our daily lives all of the time. An individual who has a smoking habit, for instance, might be willing to wait an extra week to purchase a new television set if it results in a 5% discount, but not willing to wait an extra hour to receive an extended break to go smoke. Why the disparity? Because the uneasiness provoked by the dissatisfaction of receiving a package is relatively low, but the uneasiness of not smoking a cigarette is much higher. The result of this “time preference disparity” is that packages are often delayed, but smoke breaks are not.

Even though vast variances in time preference can exist, it is a Thymological fact of human behavior that they tend not to. While individuals may have certain ends as “outliers”, most people have a fairly uniform time preference across their various ends. For example, individuals that save large portions of their income are also more likely to not overindulge in dangerous excesses, such as drinking, smoking, and recreational drugs. Additionally, individuals who are very physically fit would be expected to be more financially sound than those who are obese and overweight. One could argue that these variables themselves are loosely connected, as someone who does not overindulge has more money to save and those who don’t overeat have more money to save as well, but the more fundamental point is that individuals generally display similar proclivity to delay consumption throughout their actions.

This is true for individuals, but also applies on a society-wide scale. Societies that display low time preferences in one area are much more likely to also have lower time preferences in other areas as well. For example, societies where saving is high and large amounts of capital are accumulated are more likely to have less crime. Similarly, societies that are willing to start families and have children are more likely to have higher savings and capital accumulation. While not commonly understood in these terms, these types of behaviors are inherently low time preference as well. While the benefits and costs involved are obscured relative to economic concerns, they are present nonetheless. For example, simply being kind to those around us through simple gestures, such as holding open a door or saying “please” and “thank you”, can be viewed as low time preference activities. They don’t yield any immediate satisfaction (unless you just like holding open doors), and it would be easier for us in the short run to go about our Iives without concern for what other people think of us. But by fostering a norm that individuals should be nice to each other, you can expect that other people will behave the same way to you. So by engaging in activities are not immediately satisfying (being nice to others), you can reap a greater reward in the long run (other people being nice to you).

If we classify these activities as low-time preference, and we expect for time preferences to remain approximately the same across different ends, then we can expect these kind of behaviors to be positively correlated with other low-time preference activities as well. We even understand this on an intuitive level as well. Imagine for a moment that there are two cities in the same province: Rothbardia and Hoppiopolis. In the city of Rothbardia, people are nice to each other, the majority of the population gets married and have children, almost everyone is involved in some kind of social club, etc. In Hoppiopolis, however, things are not so sunny. People are generally unkind to each other, most people are not married and have children outside of wedlock (if they do so at all), and nobody engages with each other any more than they have to. If you had to guess, which of these cities has greater economic growth? The answer is obvious: Rothbardia. However, I didn’t mention anything about the economic climate or market conditions in either city. So why is the answer so obvious? Because of the interconnectedness of low and high time preference behaviors.

Austrian theorists often equate lowered time preference with civilization itself. What separates us from our primitive ancestors is our willingness to delay satisfaction in the present for the future. Given the interconnectedness of time preference, this is true not only in the economic realm of capital accumulation, but also applies more broadly. All of the behaviors that we associate with a functioning and thriving society — such as strong moral codes and reliable institutions — are inherently correlated with low time preference as well.

As fascinating as this connection is, it is also foreboding. If civilizational strength is associated with low time preference, then civilizational decline is associated with high time preference. A relative increase in the perceived value of present satisfaction as opposed to future satisfaction results not only in the reduced capital accumulation and economic growth, but also the erosion of the civilizational scaffolding that gives structure to our lives. This isn’t to say that a 1% increase in interest rates means the end of the world. Civilizations are much more resilient than that. However, time preferences do have consequences. A sustained and continual increase in time preferences will have its effects felt over time. These effects are precisely the inverse of low time preference and represent civilization decay: loose morality, fewer and frailer social bonds, and a general pessimism towards the future.

Time preference, fundamentally, is all about exchange. Do you want to have more? Build something bigger and stronger? Maybe even leave something behind for your children? All these things you can do, but the price is time. As much as Austrians love to promote low time preference, the costs involved should not be underestimated. Time is the ultimately scarce resource. We only have so much of it and whatever is spent can never be returned or regained. Even so, to increase our lot in the world, the price of doing so is time, however tragic that might be. For any individual, group, or society, then, there is one question to be answered: how much time are you willing to pay?