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.
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.
Some examples:
- 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 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.
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.