Lecture
What is the time preference theory of interest rates? In Austrian economics, time preference theory explains interest rates based on people's spending preferences today versus in the future. In other words, time preference looks at how people value current consumption over future consumption. Some believe that consumers prefer future goods. For example, a person may crave ice in summer and not in the winter. In this situation, it is not the ice itself that is good and is being compared since the physical property of the ice does not change; rather, the satisfaction ice brings in different weathers. In the video, Saifedean explains the concept of time preference and how it impacts all aspects of human life.
Topics covered include:
- Bohm Bawerk's Positive Theory of Capital
- Time preference and how interest rates are formed
- How time preference impacts your life and society
- The importance of low time preference for prosperity in a society
Key points:
- Humans value present goods more than future goods
- Interest rates form spontaneously from human action
- Low time preference is crucial for prosperity in society
- Trades between your present and future self are the most important trades in your life
Source: Saifedean Ammous
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