Small reward now or larger reward later? In real life we might think: why can't I just have both?
Yet it frequently is a matter of 'either or' since the smaller reward robs me of the mental resources required to create or bring about the larger reward. For example if I party now I won't get the new job later on because I won't have the energy to learn the relevant skills.
It’s usually pretty clear why you can’t have both: because resources can’t be used more than once (like money), or recharge at a certain rate (like mental energy).
I think the bigger issue is that future payoffs are inherently riskier. Spending a resource now for some utility now (like buying a movie ticket at the cinema) carries a much lower risk than even the safest 5-year investment.
I think that risk is the primary cause of time discounting, although there are others. Certain goods may have inherently less utility if you buy them later (an obvious example being a medical treatment for an ailment you have now).
What is interesting to me is why different people have different time preferences, other than obvious variables like age, wealth, education, etc. Is just a personality trait like any other? I’m also curious what people think about their own time preferences. Do people wish their discount functions were different? Obviously I sometimes regret decisions like staying up late, where I knew full well I was “screwing over my future self,” and I obviously can’t yet know how I’ll think about my long term low-discount actions, like saving money for retirement.
There's some evidence of a genomic component to future discounting. There's a section on it in Robert Sapolsky's excellent book, Behave: The Biology of Humans at Our Best and Worst.
You can have both. Invest 10% of your salary each month in a retirement fund, eat out with the rest, net costs like rent. You'll retire a millionaire. You just need to size the rewards correctly.
I never understood this... if there was some investment strategy that beat inflation, then if everyone used it, inflation would catch up to it.
So if you invest 10% of your salary all you're doing is saving 10% adjusted for inflation, assuming your investment vehicle doesn't do worse than inflation. And then when you retire you just live off that.
There is no free lunch. In Capitalism, millions of people are in a rat race to survive and eat.
In any case, no matter how wealthy Fred is, if Fred spends an extra $1000 on X then he has $1000 less to spend on something else. How is that supposed to result in inflation? Spending money doesn't magically put more money in one's pocket (despite wishing it did!), it means you've got less money.
Inflation means, afaik, only that the same amount of money has lesser purchasing power than it previously had.
This is an effect that can have various causes. One of them is that the government or Central Banks printed more money. Another way this could happen is if there was an influx of income in your region. This effect is less visible in today's economy with cheap and easy shipping of products, but can still be observed in objects that are pretty much impossible to ship. The only example that comes to my mind right now is housing.
> Inflation means, afaik, only that the same amount of money has lesser purchasing power than it previously had.
That's a tautological definition.
Money's value is determined by supply and demand, just like everything else. If there's more money representing the same amount of goods, the money gets devalued and you have inflation.
To understand inflation one must understand how money is created and destroyed, i.e. what determines the supply of money. Spending money faster does not create more supply, and McDonald's raising their prices is not inflationary because they did not create more money.
Money is created by printing it, or by the creation of debt. Money is destroyed by burning it or by paying down debt.
Well, Wikipedia seems to agree with that tautological definition.
While McDonald's alone increasing their price wouldn't be inflation, it could become that if a significant part of the businesses in that location increased theirs as well.
It's just really hard to find examples of this today. It's mostly limited to holiday hotzones, rent and similar.
> Wikipedia seems to agree with that tautological definition.
It reminds me of when I saw a technical analyst on CNBC sagely note that the reason the P/E ratio was high was because the Price rose faster than the Earnings. Sheesh!
It is not inflationary if McDonald's increases their prices. Spending more at McDonald's means you have less to spend elsewhere. Your spending does not create more money to replace it.
Consider if the money was a fixed number gold coins instead, and you'll see that anyone raising prices does not result in more gold coins.
Inflation does not mean that the amount of money was increased.
This is "just" the primary way a government or central bank controls the inflation
The definition of inflation is limited to the devaluement of a currency. This means that it can only be evaluated by comparing that currency to actual goods / services that can be bought / used.
Money is created many different ways. Banks could loan out a lot of money for instance, if some promising new opportunity is discovered. M2 money consists of many more things than just government-issued money from the mint.
Secondly, inflation is defined as a RISE IN PRICES and not the printing of money. Even Milton Friedman said that inflation is a monetary phenomenon. His claim be totally tautological if the definition was as you think it is.
Most of those investopedia inflation theories were debunked by George Reisman in the book "Capitalism". There's an awful lot of garbage circulating around as to what inflation is and what causes it.
The most ridiculous was Gerald Ford's WIP (Whip Inflation Now) campaign in the 70's:
Now, banks do create money when they make loans. But this is not inflationary as the loans are made against collateral, i.e. it is matched against value. And when the loan is repaid, the money is destroyed.
When banks make loans that have no collateral and are not paid back, it is inflationary. Guess who does that? The government! Most of what the government says about inflation is propaganda, because (like Gerald Ford) they want to blame anything and everything but government policy.
It's as much propaganda as people blaming "the speculators" for increasing housing prices.
Your comments indicated you thought inflation is printing money. So now you claim to know better than those who know the actual definition, what leads to inflation?
Creating money with no collateral and lending it out is equivalent. Whether the banknotes are actually printed on paper or just digitally added to a ledger makes no difference.
> you claim to know better
Why yes, yes I do know better than people who don't know better. I cited George Reisman, for instance, as someone who does know better.
> Who do you think increased the housing prices?
Supply and demand.
> bitcoin prices have gone up
Because people think bitcoin is the currency of the future.
Speculators don't cause assets to rise in value. They are betting that the assets will rise in value. Big difference.
I don't agree with the theory that spending the money faster is the same thing as having more money, which is why I discount the velocity of money theory of inflation.
You are missing the point. We frequently make tradeoffs in life. Many times this involves a small sacrifice now for a more sizeable gain in the future.
That's a sad way to think about life. Back of the envelope math says I can be pretty happy with way less than that, different standards and all I suppose.
Do you live in america? Do you plan to live 15-20 years past retirement? You are already at 50k/year with a million dollars, which is an amount of money that is ok in the present if you are young, but with inflation it will be a lot less.
Are you aware of how much elderly healthcare and care in general costs?
The average cost of a private room in a elderly care facility in the present is about 90k/year.
My standards are about not dying because I can't afford to pay for my prescriptions.
I hope you have kids, and they (continue to) like you.
I don't know what the inflation rate is between now and 65 years old... and I hope to live for 20 years after that. Assuming you're 50, that's 35 years of inflation which is right about a halving in value at 2%. So you're going to end your life with $25k/yr current equivalent and hope that SS and Medicare carry you through. Good luck.
social interaction gives immediate feedback. So, if your brain(s) are hunting to optimal strategies, being able to do net-present-value in a socialized competition is highly likely to get strong re-inforcement.
net-present-value to determine to plant the yummy seed for a fruit tree later has huge upsides, but demands less strong linkage ("seasons" == delay == plant now eat in 3 years) which I think is probably a product of stronger models of net-present-value than a chimp routinely builds.
the kinds of test they are administering have short cycles. they play to the social interactions chimps experience in the wild.
Try and ask the chimp to deposit into a food-based "pension fund" for its children and mates instead of eating the goodies, and see how many can learn to accrue compound interest
Yet it frequently is a matter of 'either or' since the smaller reward robs me of the mental resources required to create or bring about the larger reward. For example if I party now I won't get the new job later on because I won't have the energy to learn the relevant skills.