Time Preference and Success: Is There Any Link?
Every human acts purposefully using scarce means to attain ends. From this action axiom, we can deduce further human behavior and its effects. One such behavior is time preference.
Time preference is the idea that people value present ends above future ends. Since we must choose between various ends at any given time, we must have a preference to achieve the chosen end sooner rather than later. Otherwise, we wouldn’t have acted at all.
High Time Preference versus Low Time Preference
People have different time preferences. Thus, we distinguish between low and high time preferences. What is considered low and high in this aspect is relative.
People with (relatively) high time preferences are more present oriented. Thus, they place extra value on consuming sooner. They prefer instant gratification and are, consequently, less inclined to save and invest.
In turn, the present orientation depends on how people think about the future. Some people, like small children, have a hard time grasping the concept of the future. Others, like the severely ill and the elderly, think less of future consumption since they know there won’t be any.
On the contrary, people with (relatively) low time preferences are more future oriented. They can delay gratification and have clear visions for the future. Typically, these people are healthy adults.
Having a low time preference makes a person inclined to save and invest. Furthermore, savings and investment is what causes economic growth not just for the person in question, but for society as a whole.
Since we cannot stop consuming completely, we cannot put all our focus on increasing our production. So, in order to increase one’s production, one must refrain from a portion of consumption during some time, i.e., save.
After one has saved enough consumption can the investing begin. During the investing period, one lives off his savings. Hence, economic growth starts with low time preference and proceeds with savings and investment.
Does Low Time Preference Equal Success?
American social psychologist Walter Mischel claimed that delayed gratification (low time preference) correlates with success.
During the ’60s and ’70s, he and his colleagues performed some experiments on delayed gratification. In these experiments, four-year-old children were given a choice between receiving one marshmallow right away or waiting for fifteen minutes and receiving two instead. The children were left alone in a room while waiting.
The participating children were followed up later in adult life. The researchers found that the children who could delay their gratification were successful in many ways.
For instance, they were more likely to be socially and academically competent, more likely to have higher SAT scores, and less likely to suffer from stress.
Although the marshmallow experiment is interesting, it is, like many other experiments in the social sciences, biased and misleading. Instead, we can use praxeology to reason through whether a low time preference is related to success.
First of all, let me stress that success can mean many things and that it is subjective. The Cambridge Dictionary defines success as “the achieving of the results wanted or hoped for.” However, in this sense, I am referring to an overall “objective” success.
On time preference and personal success, Hans-Hermann Hoppe writes:
One man may not care about anything but the present and the most immediate future. Like a child, he may only be interested in instant or minimally delayed gratification. In accordance with his high time preference, he may want to be a vagabond, a drifter, a drunkard, a junkie, a daydreamer, or simply a happy-go-lucky kind of guy who likes to work as little as possible in order to enjoy each and every day to the fullest. Another man may worry about his and his offspring’s future constantly and, by means of savings, may want to build up a steadily growing stock of capital and durable consumer goods in order to provide for an increasingly larger supply of future goods and an ever longer period of provision.
Second, there are many factors behind any form of success. Some of these are external, such as upbringing, environment, culture, and luck. Others are internal within our brains. These often include risk management, social ability, grit, and intelligence.
By keeping all external and internal factors constant and equal, it becomes clear that success can depend on time preference. Likewise, we can see that success depends as much on grit or intelligence, other things equal.
While praxeology simply cannot predict future outcomes, it does describe purposeful behavior. A low time preference means that a person can delay gratification and is more future oriented.
While we cannot tell if this leads to success, a low time preference at least allows for economic growth, which is generally considered successful. On this, British real estate investor Samuel Reeds wrote in a 2022 Entrepreneur article:
Even someone with an excellent salary or a healthy company can end up poor if they have a “high time preference,” in other words being focused principally on the present. On the other hand, someone from a poor background with a low time preference and the correct training can end up wealthy.
All in all, there are many factors involved for success. A low time preference is a preferable trait and an important factor, but it is not crucial.