Day: January 30, 2020

The more I think about time, the more confused I get. The more I read about time, the more I cannot help but think about time.

In today’s post, I hope to be able to inspire you to get as confused about time as I am.

Before we get to the five links, here are some questions for you.

Should I have a gulab jamun after lunch today? If you are anything at all like me, your answer is likely to be a resounding “aye!”

Do you know who might want to say no? 70 year old Ashish (assuming I live to be that age) might not be such a big fan of I having that gulab jamun today.

Should 38 year old Ashish (for that is how old I am right now) listen to the entreaties of a 70 year old Ashish who doesn’t exist?

Well, if 38 year old Ashish wants 70 year old Ashish to have a chance of existing, I think it makes sense to ditch that damn dessert.

But, uh, good luck trying to convince 38 year old Ashish at 1.45 pm of the importance of thinking about the hypothetical existence of 70 year old Ashish.

That’s the problem of time discounting.

How important is the future, compared to the present?

Think of it in terms of gulab jamuns or interest rates offered to you by the bank, it’s the same thing. A weeekend trip to Goa (38 year old Ashish says yes!), or a fixed deposit in the bank (70 year old Ashish says yes!)?

Now: that was the easy bit. Let’s amp things up a little.

Do you wish your parents had saved a little bit more when they were younger? Hell, imagine if your grandparents hadn’t had that gulab jamun when they were young, and put the money in a fixed deposit instead. Go as far back in time as you wish, and imagine how important a rupee saved a couple of centuries ago would have been today – for you.

But, um, by that measure, shouldn’t you be saving every single rupee you can today for your child’s tomorrow? The argument holds whether you have children or not, by the way. If you wish your great-great-great-grandfather had been more financially responsible at age 27, when he was unmarried and without kids, then that goes for you today as well!

And all that being said, let’s get cracking with today’s set of links!

1. “Time discounting research investigates differences in the relative valuation placed on rewards (usually money or goods) at different points in time by comparing its valuation at an earlier date with one for a later date”…
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   … says the very simple introduction to time (temporal) discounting on behavioraleconomics.com. While you’re on that page, also look up hyperbolic discounting.
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2. “Someone with a high time preference is focused substantially on their well-being in the present and the immediate future relative to the average person, while someone with low time preference places more emphasis than average on their well-being in the further future.Time preferences are captured mathematically in the discount function. The higher the time preference, the higher the discount placed on returns receivable or costs payable in the future.”
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   That is from Wikipedia, and as homework, ask yourself if you should live life with a zero discount rate attached to most things.*
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3. “What has become known as the “Ramsey formula” says that the rate at which one should discount an increase in consumption that occurs in the future depends on three key factors, elaborated upon below: our pure rate of time preference, our expectations about future growth rates, and our judgment about whether and how fast the marginal utility of consumption declines as we grow wealthier”
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   So here’s a way to understand the point above: I was in Europe on work recently. Should I have splurged on a three star Michelin meal in Paris? Or banked the money I might have spent over there and gone for three such meals when I was 70 instead? Will such a meal at age 70 hold the same importance for me as it does now?**
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4. “When brain science was young, it was thought that the frontal lobe had no particular function. There were famous cases such as that of Phineas Gage, a railway worker who, in an explosion, had a long iron rod driven through the front of his brain. The rod was removed and Gage, miraculously, survived, seemingly with his intelligence, language and memory intact. Before long he was back at work.However, observation of others with frontal lobe damage soon revealed the cost – problems with planning, and also, strangely, a reduction in feelings of anxiety. What was the link between the two? Both planning and anxiety are related to thinking about the future. Frontal lobe damage leaves people living in a permanent present, and as a result they will not be bothering to make plans, so can’t be anxious about them.”
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   That is from a review of one of the finest books I have read, Stumbling on Happiness, by Daniel Gilbert. Read the book, please. I promise you that it is worth your (excuse the pun) time.
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5. “But there’s an alternative path. Generations overlap, and so by doing more to empower younger people today, we give somewhat more weight to the interests of future people compared to the interests of present people. This could be significant. Currently, the median voter is 47.5 years old in the USA; the average age of senators in the USA is 61.8 years. With an aging population, these numbers are very likely to get higher over time: in developed countries, the median age is project to increase by 3 to 7 years by 2050 (and by as much as 15 years in South Korea). We live in something close to a gerontocracy, and if voters and politicians are acting in their self-interest, we should expect that politics as a whole has a shorter time horizon than if younger people were more empowered.”
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   Via Marginal Revolution, this lovely, thought-provoking essay by William Macaskill. As both the MR blog post and Macaskill are careful to point out, this necessarily implies that younger people should be more informed, for such a system to have even a shot at succeeding.

 

But hey, that’s as good an argument as any for the existence of this blog!

 

*Yes, you should, far as I can tell. But god, it’s hard!

**If you were wondering, the answer is no. I didn’t go for that meal. I wish I had though!