TIME PREFERENCE (IMPATIENCE)

stream pictured as beginning today and extending intothe indefinite future, with specific increases or decreasesat different periods of time.

If we wish to be still more meticulous, we may notethat a person’s income stream is made up of a large num-ber of different elements, filaments, strands, or fibers,some of which represent nourishment, others shelter,others amusement, and so on—all the components of realincome. In a complete enumeration of these elements,we should need to distinguish the use of each differentkind of food, and the gratification of every other varietyof human want. Each of these constitutes a particularthread of the income stream, extending out from the pres-ent into the indefinite future, and varying at differentpoints of time in respect to size and probability of attain-ment. A person’s time preference, or impatience for in-come, therefore, depends theoretically on the size, timeshape, and probability (as looked at in the present) ofthis entire collection of income elements as we may pic-ture them stretching out into the entire future.

In summary, we may say then that an individual’simpatience depends on the following four characteristicsof his income stream:

1. The size (measured in dollars) of his expected realincome stream.

2. Its expected distribution in time, or its time shape—that is, whether it is constant, or increasing, or decreas-ing, or sometimes one and sometimes the other.

3. Its composition —to what extent it consists of nour-ishment, of shelter, of amusement, of education, andso on.

4. Its probability, or degree of risk or uncertainty.

We shall consider these four in order.

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