Time preference refers to the ratio at which individuals value the present compared to the future, and is positive for all humans as there is always a discount on the future compared to the present. Yet, it’s very hard for us to think long term.
This was the most interesting insight I got from reading The Bitcoin Standard by Saifedean Ammous. Time preference refers to choosing long term over short term.
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Delaying gratification is something hardly anyone is capable of nowadays, but comfort is the enemy of achievement.
Someone with high time preference is focused on their well-being in the present relative to the average person.
Someone with low time preference places more emphasis than average on their well-being in the future.
Most people tend to value present consumption more than future consumption. Having low time preference has become a superpower in life.
- Personal finance. Instead of buying the newest gadget for short term satisfaction, spend less and invest for later.
- Career. Instead of accepting a job you actually don’t like to have short term income, invest time in acquiring skills for future employment.
- Investing. Instead of day trading for short term gains, invest in index funds for long term returns.
- Food. Instead of eating junk food for instant gratification, cook whole foods yourself for long term health.
- Real estate. Instead of buying an expensive house with a mortgage for short term happiness, rent instead and buy real estate to rent out for long term profit.
- Learning. Instead of binging a Netflix series for short term entertainment, read a book to learn something valuable for later.
- Side projects. Instead of going out to party with friends, work on your side projects for future passive income.
As you can see, this has a great overlap with the cheap dopamine addictions I wrote about before.
Time preference is positive for all humans because there is always a discount on the future compared to the present.
Even though it sounds easy, it is incredibly difficult to constantly make the right choices for yourself in a world full of delusions and consumerism.
The main factor determining your choices in life is your time preference. Once you see it, you can’t unsee it.