Time preference

The time preference, and preference for the present, indicates the preference of consumers for consumption in the presence regards to the future consumption. More generally, determines the time preference, the time at which an individual prefers the consumption of a particular Guts when the choice between several possible times has ( intertemporal decision). In general, it is assumed that a consumer would rather enjoy a good in the present as in the future and would prefer to pay in the future than in the present.

In the neoclassical economic theory one tries (short DU model, dt about " discounted utility model " or " Nutzendiskontierungsmodell " ) to take the time preference in a discounted utility model. DU models assume that discounting future benefits and as a present value can be calculated. The time preference is this is usually represented by a single parameter, namely the interest rate. The thus determined present value compares in this model the individual with the things present benefit and therefore meets optimal intertemporal decisions.

By the time preference rate is explained in the Agiotheorie. Since we have placed as a rule things present consumption greater prestige as the future, do all households tend to borrow. But this is only possible if there are economic agents who are willing to save. Thus, an equilibrium between savings and loan volume, saving must be sufficiently attractive. That's only if the real interest rate is positive. The higher the interest rate, the less attractive is / will be taking up a loan. Due to the rising interest rates are some of the potential borrowers to non- Kreditaufnehmern or even to savers; then an equilibrium.

Rate of time preference

The strength of time preference is expressed as a rate of time preference. It is defined as

In this case, the benefit is from the perspective of period 0 consumption in that period of time and the benefit from the perspective of period 0 of a consumption in the next period, where: =, that is, the subjective utility of consumption of both goods in the respective period is from the perspective of appropriate time period identical.

Example: A customer wants to see a DVD movie. He is ready for this to pay € 10. This is = 10 In a year his willingness to pay will be the same: 10 ==

But how much cheaper should now have the DVD in a year's time that A will wait with the consumer? If it will cost € 9 in a year, he buys them further rather today; will they cost only 7 €, he prefers to wait one year. With an expected price of 8 € he is undecided, it is: = 2 €.

Therefore, its rate of time preference with respect to such property