DISCUSSION PAPER PI-1403
Time Preference and The Personal Valuation Of Financial Investments
David Blake & John Pickles
We use temporal value charts to illustrate the influence of time preference upon the personal valuation of financial investments. In a series of thought investments, an invested $1 is projected forward and the projected value is discounted back, both exponentially and hyperbolically. These thought investments feature three expressions of time preference: temporal neutrality (in which discount rates equal projection rates); positive time preference (discount rates exceed projection rates); and negative time preference (discount rates less than projection rates). We suggest reasons why projection and discount rates might differ. We consider how to test experimentally for time preference using this framework.
Keywords: time preference; discount rates; personal valuation; behavioural economics