Which nations think over the long term

By Razib Khan | December 16, 2010 10:06 pm

One of the major parameters which shape individual success, and macroeconomic growth in the aggregate, is time preference. Time preference basically measures an individual’s future-time orientation. Would you for example take $1,000 in the present, or wait 30 days and accept $1,500 dollars? It doesn’t need to be money, children can exhibit time preference as well. Would you like one candy bar now? Or two candy bars in an hour? I also think time preference permeates our lives more concretely. Would you like to eat some greasy food now, or would you forgo epicurean pleasures in the present for a sleeker frame in the future?

Here’s an illustration of the correlates of time preference:

In one of the most amazing developmental studies ever conducted, Walter Michel of Stanford created a simple test of the ability of four year old children to control impulses and delay gratification. Children were taken one at a time into a room with a one-way mirror. They were shown a marshmallow. The experimenter told them he had to leave and that they could have the marshmallow right then, but if they waited for the experimenter to return from an errand, they could have two marshmallows. One marshmallow was left on a table in front of them. Some children grabbed the available marshmallow within seconds of the experimenter leaving. Others waited up to twenty minutes for the experimenter to return. In a follow-up study (Shoda, Mischel, & Peake, 1990), children were tested at 18 years of age and comparisons were made between the third of the children who grabbed the marshmallow (the “impulsive”) and the third who delayed gratification in order to receive the enhanced reward (“impulse controlled”).

The third of the children who were most impulsive at four years of age scored an average of 524 verbal and 528 math. The impulse controlled students who scored 610 verbal and 652 math! This astounding 210 point total score difference on the SAT was predicted on the basis of a single observation at four years of age! The 210 point difference is as large as the average differences between that of economically advantaged versus disadvantaged children and is larger than the difference between children from families with graduate degrees versus children whose parents did not finish high school! At four years of age gobbling a marshmallow now v. waiting for two later is twice as good a predictor of later SAT scores than is IQ.

The issue of causality is probably one which you will immediately bring up. There is a correlation between higher IQ and low time preference (consuming less in the present to have a potential for more consumption in the future), but who knows how the feedback loops here work? For example, unlike many males my age I gave up playing video games around the age of 16. I calculated that I was substituting video games for reading, and that that would have long term consequences which I was not pleased with. Video games were very pleasurable in the short term, addictive even. But I decided that there simply were not enough hours in the day that I could do everything I needed to do, so I stopped playing them (I am aware that many, many, very smart people are avid video game enthusiasts. I’m just using it to illustrate the trade offs one might make). How much less erudite, as Dr. Dan MacArthur might say, would I be if I did continue to expend many hours per week on video games?

A new working paper on the SSRN website has some interesting data on time preference cross-culturally. How Time Preferences Differ: Evidence from 45 Countries:

We present results from the first large-scale international survey on time discounting, conducted in 45 countries. Cross-country variation cannot simply be explained by economic variables such as interest or inflation rates. In particular, we find strong evidence for cultural differences, as measured by the Hofstede cultural dimensions. For example, large levels of Uncertainty Avoidance are associated with strong hyperbolic discounting. We also find relations between time preferences and risk preferences, like loss aversion. For instance, subjects with high loss aversion tend to show larger time discounting. Moreover, our analysis shows an impact of time preferences on the capability of technological innovations in a country and on environmental protection.

To get published in orthodox economics you need to do a lot of mathematical modeling, but I’m not too interested in that. Rather, let’s look at some of the descriptive results. The first two figures shows the percentage of participants who chose the $3800 option when they were asked to choose between $3400 this month or $3800 next month. The last figure has on the x-axis “time pace.” This is an overall-pace measure is calculated out of three measures: walking speed, postal speed, and clock accuracy.

Some of the text is very illuminating as to cross-cultural differences:

Even for the students from Princeton University, the percentage choosing the patient option is lower than the percentage of German students (80% vs. 89%). Actually some students from our Norway survey even complained that the question was ridiculous because everybody would choose to wait for one month given the high implicit interest rate.

Other results were not surprising:

This result suggests that although the wealth level (and hence a general level of a country’s economy) is crucial to stimulate innovation, the attitude towards future also plays an important role. For example, while 69% of Taiwanese participants prefer to wait in the one-month question, only 44% of our Italian students prefer to wait. The two countries have the same GDP per capita in 2007, but Taiwan scored much higher in the innovation factor than Italy (5.26 vs. 4.19). It is worthwhile to investigate further to what extent and under what mechanism a general attitude towards future is related to the innovation activity.

And yet some were (at least to me):

After controlling the macro-economic variables (GDP per capita, growth rate, inflation rate), participants from countries with higher degree of Individualism and Long Term Orientation are more likely to wait. In contrast, for the present bias and long-term discount factor, the country with higher Uncertainty Avoidance score tend to discount the next year more.

In other words, societies and individuals who were more individualistic tended to have low time preference (more future-time orientation). It would be interesting to further decouple confounding variables. I assume that more intelligent people are more individualistic as well, so that might be the source of the correlation.

I didn’t focus on the formal model too much here because this seems highly exploratory, and there were many non-significant results. But I think this paragraph is of some interest:

In summary, it seems that we need different models for waiting tendency and medium/long-term discount factor. The waiting tendency depends more on the fundamental economic variables such as the country’s wealth level, and on general attitudes in a society such as individualism and the mentality towards past and future. In comparison, the medium/long-term discount factor depends more on the dynamic factors such as growth rate, and the attitudes toward uncertainty.

CATEGORIZED UNDER: Culture, Economics, Social Science

Comments (25)

  1. jld

    The underlying cause of “impulsivity” is hyperbolic discounting as best explained in the works of Georges Ainslie.
    So the real question when it comes to national differences is how much is from culture v/s how much from biology (yet another unwelcome “nasty” question for you know whom…)
    P.S. Why is it that France is not on the charts?

  2. jld

    Another different perspective at the individual level is the conflict between the current self and the remembering self.

  3. dan

    “After controlling the macro-economic variables (GDP per capita, growth rate, inflation rate)…”

    we can assume the charts were made after they controlled for the fact that poorer individuals are more desperate for money, correct? also, many times i consider whether psychology studies are over thinking life in general. when so many things in life never pan out is it really so bad to have a guaranteed “prize” immediately when the “promised” prize may never arrive? i guess i just don’t depend on many people to follow through with what they say they’re going to do. could homogenized/more trustful societies be a cause?

  4. There is a Greek proverb: “kallio pente kai sto xeri para deka kai karteri” which can be paraphrased “better five and in your hand, than a promise for ten for which you have to wait”. This probably correlates with Greece’s position in the table.

    From a utilitarian perspective (and unless you have a reason to think you’ll die soon afer a month), it makes sense to go for the bigger prize. But, this conflicts with the inherent conservatism/worst-case scenario thinking of the proverb, that the promised prize may not be around in the future.

  5. Ian

    Interesting. My first reaction was that no one would pick the money now, that the gain for waiting a month is far too large to measure real differences. I was wrong. But then I thought about it, and I realised that there actually are good reasons to take the money now. To begin with, if you need it to buy food/medicine/avoid eviction/save your house from foreclosure/pay tuition… there situationally specific reasons not to wait. But they weren’t offering real money in this exercise, were they?

    Do wish they had included Indians…

  6. Lassi Hippeläinen

    Was that $3400 the same in cash, or was there a parity correction? For a German it is little money, but for a Nigerian it is a small fortune.

    BTW, there seems to be a correlation with climate. Those who choose to wait live in countries where winters are cold, and survival depends on getting prepared several months ahead.

  7. Ddrag Verd

    There is also a similar Romanian saying “Nu da vrabia din mana pentru cioara de pe gard” meaning “Don’t give the sparrow in your hand for crow on the fence”. There is also a strong consensus in general that the right thing to do is to take what you can now and not wait for the future. The general default assumption about the future is that things will be worse then now. I also remember a study that showed that Norwegians are the most trusting when it comes to strangers while the South Europeans and especially South East Europeans (Balkans) where some of the least trusting in strangers.
    I’m pretty sure that delaying gratification is important requirement for success. But maybe in a low-trust, high instability environment not doing so is the most rational thing. Of course this can lead to chicken and egg situation. Maybe the environment is unstable because nobody is thinking for the future.

  8. 4runner

    I’d also like to see the impact of things like crime rates and rule of law on those decisions.

    Long term investments in the future are pretty irrational when the future is extremely uncertain…

  9. AG

    Like Dienekes Says, trust can be issue here. Promising a future larger prize can be scam artist trick at ponzi scheme. Maybe this test is really about social trust instead of true future orientation.

    Better test for adults might be what would you do with $100k prize. Spending it,or investing it, invest in what ects.

  10. KP


    To put it another way, maybe a future orientation depends on some level of social trust ?

  11. AG

    BTW, I just can not give up online FPS game against real human opponents. It is joy to figure out how to outperform and own the game. Certainly when you are too good at it, you might get banned from server admins who think there is no fun with you playing.

  12. toto

    I have a possible explanation for the incredibly low score of Southern Europe (hell, Spain, Italy and Greece are 20% lower than Turkey!)

    Today, given the choice, I would wait. But at age 20, as a penniless graduate waiting to get a job (in France), I would definitely have taken the 3400 here and now – because it would bring medium-term stability, i.e. the assurance of not ending up in the street for the next few months. By the time the money would wear out, I might well have gotten a job.

    So I think it is rational to take the 3400 now if you are in a situation that is currently very unstable, with a high short-term risk of destitution, but with a reasonable chance of accessing comfortable stability in the future.

    This double condition would be a hallmark of student’s expectations in rigid economies with a highly protective job market, typical of Southern Europe. Hence the low score of “Hellespanitaly”.

    Additionally, regarding the high score of Turkey, I suspect that “economics students” may represent a different social stratum in Turkey than in Europe.

    P.S. Why is it that France is not on the charts?

    From my (previously described) experience, it would not score much higher than Southern Europe. Though there would be large regional differences, but I suspect the same is true in Italy.

  13. pconroy

    That Greek proverb is somewhat like the English one:
    “A bird in the hand is worth two in the bush”

    As it implies uncertainty of future payment.

    I reckon that any society going through financial turmoil or revolution, would score low on this test, along with other generally low-trust societies.

  14. omar

    Explain New Zealand…

  15. AG


    ~To put it another way, maybe a future orientation depends on some level of social trust ?~

    To answer your question, no.

    For example, when you plan your personal educational, career choice, or planting your own farm, it is a task of future orientation with little social trust concern.

  16. Chris T

    While I have no doubt time preference plays a big role in separating rich from poor. I also question the use of money as the prize. As has been pointed out, there are myriad situations where having money now is worth far more than the promise of a higher amount later.

  17. Jason Malloy

    It’s a rough test, so it’s only a roughly accurate hierarchy; and I disagree with people who are suggesting that the low-trust insta-payment is probably a more rational option for people in the bottom tier of the chart, from an economic standpoint. It isn’t. The patient nerds are the economic winners in everyone of those nations.

    Instead I would focus on things like number of children and age of first sex and reproduction. The poor are focused on the present because that is when they are programmed to reproduce– when they are young and healthy. Working diligently, saving money and starting a family at 30 is usually good for your standard of living, but not always good for maximizing your descendants.

  18. miko

    Four year olds have already had abundant life experience with adults, who are to highly variable in terms of honesty and trustworthiness (and probably varies roughly predictably with SES). We might be looking at rational strategies based on family experience rather than an innate personality trait (though I’m sure this is a quant trait under a given condition). The learned strategy then proves to be either good or poor preparation for choices made in broader contexts (school, work).

  19. Francis Fukayama wrote a book called “Trust” with a similar premise trying to argue that “high trust” societies enjoyed more economic growth than “low trust” societies, with time consciousness constituting one of the “social virtues” correlated with high trust societies. It is one of the better examples of the larger literature that looks at links between national culture and national economic outcomes. He also drew on Robert Putnam’s concept that Social Capital in a society has economic value. The link between time preference and trust is a natural one. A future time preference only makes sense if future outcomes are predictable, and depend on context. A bird in the hand is one worth two in the bush makes sense if you are a small business with no cash reserves cashing accounts receivable, but little if you are an already affluent individual planning for your retirement.

    But, the grain of salt that came with the book “Trust,” quite by accident, is worth recalling. A big conclusion of the book was that Japan was a highly economically successful country that had grown at high rates due to high levels of trust and widespread commitment to social virtues in society. Not long after the book went to print, Japan entered a slump, the Lost Decade, from which it has never really fully discovered despite a brief episode of robust economic growth squeezed between two long periods of stagnation. Japanese public finance is also now precarious, not quite as out of kilter as Greece, Spain and Ireland, but much larger in scale and not that far from being out of balance either.

    Not long after Trust was released, Richard Florida’s examination of the cultural determinants of economic growth, “The Rise of the Creative Class” was released, and while his release didn’t necessarily contradict Fukayama, he did find that economic growth was greatest in places where people tend to have large but shallow social networks, and in places that have diversity and tolerance for different lifestyles — basically places with low social capital. This is probably because excess social capital can discourage innovation through a pressure to conform and deep relationships narrow the pool of people with whom you might need to be connected at some critical moment since each one takes more of your time.

    The encouraging part of time preference as a determinant of the fate of nations is that it is known from history to be mutable. For example, there is good documentation of the transition of English society from a not very time conscious one to a very time conscious one in the industrial era that made clock towers, pocket watches and grandfather clocks Anglo cultural icons. In much of the United States, time consciousness arose from the need to make the trains run on time. It seems plausible that time consciousness might be more a symptom than a cause of economic prosperity.

    One also wonders how much the now or later question, for example, seemingly a neutral one, when phased in money terms is a function of a national currency’s history of hyperinflation. Mexico, at the bottom, for example, has seen its currency devalued so often that the interest rates that Norweigens think are so high might seem more realistic.

  20. nick

    The results seem in tune with Thöni & Gächter’s nation rankings on the public good game.

  21. KP


    ~For example, when you plan your personal educational, career choice, or planting your own farm, it is a task of future orientation with little social trust concern.~

    It’s hard to have a future orientation if you can’t rely on social trust.

    You might not plant a farm if there was a large risk that someone would just take it from you. You would be less likely to think of university if a gang was threatening to kill you.

  22. Lars

    To be an accurate study, it would have to ask people whose incomes are similar.

    Greece – “Greeks can’t trust their fellow Greeks.” http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010?currentPage=all

    – that’s why they want their money now. Italians and Spaniards have a similar attitude.

    Nigeria – I remember reading about Nigerians in Japan. Their Japanese wives would complain about their lack of thought for the future.

  23. Anthony

    If you ask me whether I would prefer $3400 now or $3800 in a month (or even in 6 months), my answer would depend strongly on how you proposed to guarantee the later payment. This is even more strongly true if you are promising me $3800 later contingent on me paying $3400 now.

    American society (and European and Japanese) has provided institutions which can be trusted to honor these promises, but the cost of enforcement is relatively high, and so it is easier to trust institutions which make such promises on a scale large enough that enforcement costs are small compared to the amounts at stake.

  24. Jason Malloy

    Here’s another international time preference comparison using the World Values Survey. It’s in press and just came online.


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About Razib Khan

I have degrees in biology and biochemistry, a passion for genetics, history, and philosophy, and shrimp is my favorite food. In relation to nationality I'm a American Northwesterner, in politics I'm a reactionary, and as for religion I have none (I'm an atheist). If you want to know more, see the links at http://www.razib.com


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