Time preference

Can you be the person with the lowest time preference in the room?

“A society grows great when old men plant trees whose shade they know they shall never sit in." (Greek Proverb)

Understanding time preference was a profound realization that I reached through studying Bitcoin. It introduced me to the concept of Austrian economics and the idea that time preference determines individuals' behavior regarding consumption versus saving, as well as the impact it has on how interest rates are set.

While this post doesn't pretend to be an essay on the intricacies of Bitcoin, I may share in the future how I delved into that rabbit hole, attempting to answer the seemingly simple question of "What is money?" to be able to understand if Bitcoin had any intrinsic value.

Today, my goal is to extrapolate the concept of time preference to leadership, both at a personal and team level. This is the most valuable lesson: everything we do today involves a trade with our future selves.

But what is exactly time preference?

Before we continue, here you have “The Treat”, the music that made me company while writing… today Diana Krall "Dancing in the dark" . Hope you enjoy it!

In simple terms and not being an economist myself, time preference refers to the tendency of people to prefer present consumption over future consumption because the expected utility of consumption diminishes over time. A higher time preference means a greater focus on the present moment, while a lower time preference emphasizes the future.

Although numerous factors shape our personal and professional growth trajectories, the type of time preference we embrace plays a significant role and reflects more than we think on the type of mindset we develop. We can choose to prioritize immediate gratification and neglect the future, or we can choose to be much more future oriented, understanding that in many instances gratification can wait.

We could debate the reasons behind perceiving present satisfaction as negative and future rewards as positive, but what is crucial to understand is that starting a project with enthusiasm, launching a program successfully, or building a cohesive team are only part of the equation. Without a well-thought-out plan for a safe landing, everything can eventually crash.

Similarly, just as a book can have compelling chapters or a movie gift us with unforgettable scenes, a poor ending can ruin the entire experience. Why? The conclusion of a story reveals the extent to which the entire plot was meticulously crafted (or not). We have to aspire to lead lives with well-thought-out plots to the best of our abilities and within the challenges and opportunities given by our circumstances. Equally, we should lead with a legacy-driven mindset, not a short term perspective; even if our tenure is short.

“We can choose to make our lives easier in the long run by tackling the difficult tasks today, or we can prioritize easy tasks today and make our future lives much harder.”

In today's digital world, there is real cause for concern. The constant bombardment with mindless stimuli results in something even worse, an ultra-high time preference mindset that can affect even the most composed individuals.

The more we cultivate a high time preference mindset and we shape our daily behaviors accordingly, the stronger our need for immediate gratification becomes. We become a slave of time. This in turn seriously affects the ability to cultivate the virtue of patience and to live in a present moment of awareness. Life becomes an endless series of "todays."

High time preference breeds anxiety and impulsive decision-making, while Low time preference nurtures mindfulness and a thoughtful decision-making process.

Living in a perpetual present (with very high time preference) is the antithesis of being present, of taking the time to think and reflect. When we embrace the present moment, we can more often learn from it and observe calmly while envisioning the future. This is the essence of low time preference.

High time preference creates a reactionary state to external stimuli, while the low time preference allows for more intentional action. Living in the present causes everything to rush past our eyes, while being present allows for contemplation, observation, inquiry, and learning. Most importantly, it enables us to act our way into the future instead of merely reacting to present events.

I believe the most balanced way of living is to reside in the future while remaining acutely aware of the present moment: intentional about the change we want to see happen and mindful about our current circumstances.

So, what does low time preference look like when applied to our daily lives and professional careers? It entails intense awareness of the present while patiently rowing towards the future. Your time preference profoundly influences the decisions you make today.

Low time preference decision-makers think in terms of years, not days; in decades, not years. They are the ones planting the trees.

as I write these words I realize that my father was the first person to teach me this concept without ever using these formal terms. He often referred to it; the first time being when I was 15 or 16 years old.

"Look around," I would hear him say. "Remember the faces and come back in ten years. Many of these people will be in the exact same place, doing the exact same thing, because of the choices they make today with their time."

It was a life-altering lesson that has served me well throughout my life.

Thanks, Dad!

P.S. Before I go, here you have “The Treat,” where I share some of the music that kept me company while writing … Enjoy as you bid farewell to this post

“Lead yourself, Learn to live. Lead others, Learn to Build.”

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