It is common to read in Austrian works about individual with high or low time preference. What does having a low time preference mean? Obviously “low” means lower than something, it can keep a purely ordinal meaning if we say an individual has a low time preference when his time preference is lower than that of the majority. This in turns implies that we the comparison of time preference between two people is meaningful. I believe it means that lower time preference can be demonstrated by human action.
If I and my girlfriend each face a plate of seven cookies and are given the opportunity to eat one each day, the following will happen. I will eat the seven cookies at once while my girlfriend will eat one for each day of the week.
Can we conclude that my girlfriend has a lower time preference than I? Well not necessarily, my girlfriend has a much smaller stomach and she feel full after a single cookie and could not possibly eat one for the rest of the day. How can we tell from her actions whether she is demonstrating a lower time preference or frugality?
It would seem to me that the only thing that is comparable from actions is a combination of frugality and time preference, the same combination that produces saving behavior. Therefore it would be incorrect to speak of high vs low time preference.
Am I mistaken in my understanding of time preference and/or the praxeological method or is this a valid point?
Why do you think time preference is different than “frugality”?
Some people are larger savers than others, thats all that is meant when talking about high and low time preference. You don’t need to set up a hypothetical to prove this, you already know this from experience.
I would define time preference by the extent to which a quantity must be increased if received at some future time to make you switch from consuming it now to consuming it at that future time. Consequently, choosing when to consume a good that does not increase over time does not bear directly on time preference, except for the law of diminishing returns. According to the law of diminishing returns, consuming a second unit of a good within a certain period of time produces less benefit than consuming the first produced. If the “cooldown” is short, as in the case of a cookie, then putting off consumption of a second cookie until tomorrow would increase the benefit afforded by that one cookie, producing the same result as if the cookie grew in size over time. Consequently, diminishing returns can produce an effective interest rate where none exists in actuality.
So, if you have two cookies, a time preference of 10% a day (the daily augmentation in benefit necessary to trigger a postponement of consumption) and diminishing returns of 5% for the second cookie, you would consume both cookies the same day. Your girlfriend, due to her smaller appetite, might have diminishing returns of 15% for the second cookie, in which case even with the same time preference she would postpone eating the second cookie.
This has nothing to do with frugality, which I would define as having a low time preference. It merely has to do with having different rates of diminishing returns effecting the time difference in benefit.
In a previous post I suggested the hypothesis that the people in the country of Brazil in the last few years may have collectively shifted their time preferences towards more investment. Anecdotal evidence (current events, the rise of Brazil as a world and regional power) is the basis of my informal argument
How could we scientifically measure the validity or falsity of this statement?
Is such is the case, I am sure that a suggestion of some kind of econometric measuring of time preferences would make a great PhD dissertation. The frontiers of Austrian economics are not locked.