Time Preference
Also known as: Temporal Preference, Intertemporal Choice
Formulated by Carl Menger (1871)
Definition
The economic principle that individuals value goods and services more highly in the present than in the future, all else being equal. This preference for present over future satisfaction is a fundamental aspect of human action and explains the existence of interest rates. People discount future goods because of uncertainty, mortality, and the possibility that present goods can be used productively to create more future goods. Time preference is the basis for capital accumulation, savings, and investment decisions in an economy.