Lowering your time preference

In my last post I introduced the concept of time preference and some basic human behaviours around it. I left that blog post with two questions; why has our current political and economical systems failed at lowering society’s time preference at large, and what can we do ourselves to achieve this?

Why would you want to lower your time preference?

I briefly touched on this in my first blog post. In essence, it comes down to sustainability—both in an economical and environmental sense for yourself, but also for the community around you. Low time preference is a societal catalyst.

What’s gone wrong?

There’s certainly no one answer to this question. It’s even a subjective matter whether or not anything is wrong at all, of course. But here are some of my own opinions on this.

Populism

Since the Cold War, tensions have risen between political parties and nations. In both US and Europe, extreme populism is making the matter worse.

It’s hard to keep a low time preference and think or plan for the future when there’s so much uncertainty.

Short-term political system

Economics and environmental questions are all about outcomes. For example, what happens within a company’s financial quarter is much less important than the quarterly result (outcome), which often will impact employees’ salary progression, bonuses etc. The same goes for environmental matters—you can take hundreds of positive actions for the environment, but if the outcome isn’t changing over time, what does it matter?

The flaw here is that our current political structures are all about short-term intentions, and not outcomes. We vote based on promises, and there are no real ramifications for politicians, if they fail with the outcome. While they might not get re-elected, they’re still being paid salary based on promises made prior to the last election.

Our current political structures have inherently high time preference. What changes would be needed so that we can hold politicians accountable to the outcomes of their promises?

Artificially low interest rates

With the current fractional-reserve banking system interest rates are kept artificially low, by means of increasing money supply (inflation) to balance the cost of money. Low interest rates incentivise high time preference, because it becomes cheaper to borrow money in order to spend.

How to lower your time preference?

Again, there isn’t one answer to a complicated question like this. But in my opinion, below you’ll find a few themes that can lower your time preference.

Stay informed, have a dialog

By staying politically informed, informing others, inviting and incentivising proper political dialog, you’ll likely have a positive effect on political certainty and reduce extreme populism for the community around you. This will help yourself and others to a lower time preference, and think more long-term.

It is difficult however, to get everyone to agree in a democracy that’s dictated by the majority. I’ve written about this in the past. Perhaps what we really need is to reboot liberalism.

Reduce exposure to inflation and low interests rates

Having your money do nothing on a low interest rate savings account will, consciously or not, incentivise you to have a high time preference and make short-term decisions (spending that money) as there’s no opportunity cost of doing so. As mentioned in my first post, when all things are equal humans tend to have high preference by default.

If a low interest rate and inflation make you have a high time preference—what would have to change to lower your time preference instead?

Placing your money such that it actually grows over time (instead of shrinking) would incentivise you to lower your time preference, delay unnecessary spending and think sustainably for the future. Mind you, this isn’t about making capital profits, it’s about the economical and environmental sustainability of yourself and your community.

How you make your money grow long-term without participating in risky high time preference activities (such as speculation and stock picking) is a complicated topic, and the answer will largely depend on your own circumstances.

Reduce your carbon footprint

When you try reducing your carbon footprint you obviously do the future environment (and the economy) a big favour, but you also slow down your consumption habits in the process by reducing, reusing, upcycling and recycling goods (preferably in that particular order).

What concrete steps one can take to reduce the carbon footprint is for another blog post. But the big themes are; shopping habits, mode of transportation, the types of food you consume, how you use energy (electricity, water etc.) and many many other things.