Time Preferences in Different Countries

 

Garret Jones, via twitter, links to a very interesting paper by the Swiss Finance Institutue. Mei Wang, Marc Oliver Rieger and Thorseten Hens did a study titled How Time Preferences Differ: Evidence from 45 Countries.  In this study, they found that not all countries are equal. Richer countries were more likely to contain more patient citizens*.  Countries with more punctuality and a higher working speed and more innovation also had more patient people.

The chart below measured what percent of the respondents decided to wait for $3800 next month rather than taking $3400 this month. If you look at the top of the chart where more people would wait for a monthly return of over 11%, you will generally find countries with less severe financial crises. At the bottom of the chart are countries who are either undeveloped or particuarly at risk of financial crisis.  While it is possible that the current situation of countries like Greece and Spain make people very short term oriented, the different perspectives that these cultures have on time has been noted previous to the crisis so it is more likely that the shorter term perspective of their population is what helped get them into their current financial mess in the first place.

The US comes in slightly less patient than Ireland and more patient than Turkey.  It is distinctly less patient than the German-Nordic countries.  The paper notes that a larger sample done in a previous survey gave the US a score of only 40%, which is below even Greece in this sample.  If the US is anything like Greece, this implies that it that people won't want to suffer through fiscal tightening now to make the future better, so spending without taxing is going to continue until it is stopped by a market crisis. 

*It should be noted that their data was only on university students rather than the population as a whole
2 responses
In the paper, the 40% score for the US comes from a sample consisting of only undergraduate students. Maybe there is some age-related effect?

I've wondered if there is an explanation for these types of survey results in the form of a very high credit risk on informal promises to pay. This would be culturally dependent, which would explain the significant differences from one nation to another. It would also provide a model in which the behavior of citizens in (say) Greece is (individually) rational: governments generally do not provide static enforceable contracts to their citizens. What individuals obtain from retirement schemes (such as Social Security in the US), is much more akin to an informal promise to pay.

If there is a lot of credit risk associated with such promises, the enormous implied discount rates mentioned in the paper make sense.

Both studies used undergraduates. This study had a relatively small sample size of of 72 for the US while the other study looked at 807 students. It is possible that the smaller sample only looked at econ students while the larger sample looked at all students, I haven't read the paper with the larger sample yet.

The informal promise to pay is part of it, some of the people hear "Do you want this or nothing?" They had other questions relating to one year and 10 year time preferences. These preferences were more correlated with economic conditions such as the wealth and growth rate of the country as well as how much they valued avoiding uncertainty.

The theory of the authors is that the one month question is more a measure of attitude while the response to questions about longer time periods are the result of more careful analysis that would be impacted by the country's fiscal condition. Attitude can be shaped by bad institutions, but bad culture can also shape bad institutions. The idea of "bad cultures" is vastly underrated by the current zeitgeist.