Time Preference. CHOICE OVER TIME, George Loewenstein and Jon Elster (eds), New York: Russell Sage, 1992, 423 pp., ISBN 0-87154-558-6

Abstract

This book collects together a number of contributions by leading experts on time preferences and related topics. My own background is in axiomatic models for decision under uncertainty and time preference is a new and recent interest for me. This book gives a broad overview of the relevant issues, and some deep analyses. It was a perfect introduction into the topic for me. At several places the authors express enthusiasm (front flap: ‘Many of our most urgent national problems , . .’, p. xxiii: ‘With ever greater insistence, American social scientists are being called upon to explain and offer remedies for a broad range of societal problems . . .’). Similar to the field of decision under uncertainty, that is in the stage of ‘No to expected utility’ without yet a very clear alternative, the field of time preference is in the stage of ‘No to constant discounting’. Several chapters d o argue for an alternative, i.e. hyperbolic discounting (receiving $x after time T is worth U(x)/ (k+ T)‘, where k and r are constants and U is a utility function). Let me now summarize the chapters of the book, drawing upon the excellent summary provided in the preface. In Chapter 1, Loewenstein provides a historical survey of the topic. It describes discussions between Jevons (future consumption gives present utility) and Bohm-Bawerk (future consumption gives only present cognition of future utility), and many other topics. Studying the historical development of a subject is a good way for getting acquainted with it, and I greatly enjoyed this chapter. Chapter 2, by Jon Elster, discusses methods for self-binding and commitment in politics, thus illustrating the broad relevance of time preference. Chapter 3, by Ainslie and Haslam, argues strongly for hyperbolic discounting instead of constant discounting, with a discussion of ideas of Freud on page 59. Page 63 presents an evolutionary argument for low discounting, and pages 65 onwards provide some formalizations, elaborated in a loose and thus ISBN 0-87154-558-6 accessible manner. Chapter 4, by Rachlin and Raineri, also argues for hyperbolic discounting and compares it to many similar subjective perceptions. (A nice comparison of Chapters 3 and 4 is given on pp. xii-xiii.) Next, Chapter 5 presents an influential paper by Loewenstein and Prelec, published also in the Quarterly Journal of Economics, 107 (1992), pp. 513-91 (the volume and pages were not yet known when the book was printed). They employ a most useful analogy between time preference and preference under uncertainty to develop a time-preference analogy of prospect theory. I did wonder, in their model