Taking Time-Preference to New Levels

By now, most of y’all have read about the woman who fired at Burger King employees because they were taking too long to provide her food.

I can sympathize with her; it’s frustrating when employees seem to place little value on your time. Just yesterday, I was at a UPS store, and the two employees were chatting away – ignoring me, even though I was the only customer. I wasn’t carrying at the time, so shooting at them was out of the question. Hell, I didn’t even have my pepper spray with me. With few other options, I waited for a couple of minutes and then said, “Excuse me!” That did the trick, and no shots were fired.

Nobody deserves to be shot at for being too slow at their job, especially when they’re making $9/hr. What kind of person shoots at Burger King workers?

Answer: Somebody with an especially high time-preference. In tropical climates, food is relatively abundant, and once it’s acquired, it will spoil quickly. It makes more sense to eat it immediately than to save it for later. In contrast, this type of behavior would be fatal in colder climates, where one must store food for the winter.

It’s been pointed out that American blacks invest less for the future, even accounting for income:

Several studies have tried to explain the wealth divide. Smith (1995a) reported that it is due in part to lower minority incomes, poorer health, and smaller inheritances. Even after controlling for income and demographic factors, Blau and Graham (1990) found that almost three-quarters of the black-white wealth gap could not be explained; they speculated that differences in intergenerational transfers and, to a smaller extent, barriers to the accumulation of home and business equity might be responsible.4 Altonji, Doraszelski, and Segal (2001), who also determined that income and demographics play a small role, have suggested that differences in saving behavior and rates of return on assets may be more important than intergenerational transfers in explaining the wealth gap…

The present analysis finds that at every income quartile and education level, minority households are less likely than white households to own a wide variety of assets–particularly riskier, higher-yielding assets. This finding suggests that minority and white households approach saving differently.

It’s a complex issue, and it’s important to bear in mind that a high time-preference among blacks today (leading them to invest less of their income) also applied to their ancestors – leading to differences in generational wealth. Therefore, pointing to generational wealth differences does not automatically mean that a high time-preference has nothing to do with it.

High crime-rates among black Americans can also be explained by a high time-preference. After all, if the individual is more concerned with venting his anger in the present, than possible repercussions in the future, he’s more likely to act out.

Most black people don’t shoot at fast food workers for taking too long to prepare their order, but it seems likely that the woman in question represents an extreme case of high time-preference, and we find many more of these among blacks than among other demographics.

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2 Responses to Taking Time-Preference to New Levels

  1. 370H55V says:

    I once had a black boss who made a very respectable salary. We were talking once about 401k’s and he said that he had all his in the plan’s fixed income fund. I noted that wasn’t a good idea, and that he might be better off diversifying a bit. He didn’t appreciate that, so better judgment left me to drop the subject. However, I have read stories about and by black financial planners who pretty much tear their hair out in frustration regarding black unwillingness to take any kind of risk at all.

    Unfortunately, this sort of thinking is not limited to blacks. My own Jewish mother had everything in CDs (but at least this was in ancient history when they paid decent interest). I told her she should diversify as well, and that even if she put 10% into a solid no-load mutual fund she’d be getting a better return, but she grew up in the Great Depression, and she was “afraid”. So she died with only a couple grand to her name and never got a chance to fulfill some of her bucket list aspirations because of that. She never even understood the concept of interest rate risk. I told her that even if she was going to do CDs only, she should at least ladder them so she would get the benefit of higher rates on longer term CDs, but she never did that, preferring instead to put everything into one, even though she would never need all that liquidity at once.

    Women and blacks. Let’s not let them run the country into the ground.

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