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Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly a

Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window. If they don't have that information, they can't have time preference. Lenders will be reluctant to lend at "market clearing" interest rates and consistently demand a premium giving the rise to usury. However, usury can't be banned, because the concept of lending is about bringing money from places with low utility to places with high utility. Strangely enough, this means any ability of money to save transaction costs and facilitate gets priced into interest. We are even further away from the time preference theory at this point. The real question one should ask, if lending brings money to the poor, which is a good thing, why does it flow to back to the rich? Why doesn't an overabundance of wealthy people willing to lend for nothing appear?

logicchains 3y ago
>Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window. This is just wrong. Time preference doesn't require lenders to have perfect knowledge, it also describes how two lenders with access to similar (necessarily incomplete) information about the future would behave differently due to different time preferences.
HPsquared 3y ago
Care to explain the reasoning behind this? I don't follow.
- MichaelRo 3y ago
  Looks like ChatGPT hallucinating.
quxbar 3y ago
I would venture to guess that people are largely poor because they've been thoroughly exploited by the rich, and short-term greed is allowed to take precedence over higher-utility outcomes.
- prewett 3y ago
  That's a popular Marxist narrative, and conveniently puts on the blame on "them", but I don't think it's true. Plus, pretty much everyone on this site are "the rich" by world standards, so look to yourself, oppressor-(wo)man! My observation is that a lot of people are poor because they lack the ability to make money, generally because they don't have any skills. I lived in a city that was pretty poor, and there was no interest in education and no real thought that one could better oneself by learning skills. One girl I met was "homeschooled", which meant that she was unsupervised and did whatever she wanted, which was not learn anything. She was borrowing from her future to do nothing now. When all you have to offer is unskilled labor, you are going to be poor. I also knew a couple who were also quite poor, but they had a small shop (which they lived in), and were augmenting it through drop shipping businesses advertised on TikTok. The shop was not successful, but between the two of them, their other businesses were doing okay. These people were poor, but they did not have the poverty mindset of the others.
cosmojg 3y ago
> Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window. If they don't have that information, they can't have time preference. Lenders will be reluctant to lend at "market clearing" interest rates and consistently demand a premium giving the rise to usury. If everything required perfect knowledge to be actionably modeled, humans wouldn't do anything. At the very least, markets wouldn't clear. In practice, the realized price of time preference is typically a fraction (or multiple) of its full value, proportionally reflecting the uncertainty involved in its estimation. This is true of all factors involved in the pricing of any marketable asset, not just time preference and not just loans.

logicchains 3y ago

>Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window. This is just wrong. Time preference doesn't require lenders to have perfect knowledge, it also describes how two lenders with access to similar (necessarily incomplete) information about the future would behave differently due to different time preferences.

HPsquared 3y ago

Care to explain the reasoning behind this? I don't follow.

MichaelRo 3y ago
Looks like ChatGPT hallucinating.

quxbar 3y ago

I would venture to guess that people are largely poor because they've been thoroughly exploited by the rich, and short-term greed is allowed to take precedence over higher-utility outcomes.

prewett 3y ago
That's a popular Marxist narrative, and conveniently puts on the blame on "them", but I don't think it's true. Plus, pretty much everyone on this site are "the rich" by world standards, so look to yourself, oppressor-(wo)man! My observation is that a lot of people are poor because they lack the ability to make money, generally because they don't have any skills. I lived in a city that was pretty poor, and there was no interest in education and no real thought that one could better oneself by learning skills. One girl I met was "homeschooled", which meant that she was unsupervised and did whatever she wanted, which was not learn anything. She was borrowing from her future to do nothing now. When all you have to offer is unskilled labor, you are going to be poor. I also knew a couple who were also quite poor, but they had a small shop (which they lived in), and were augmenting it through drop shipping businesses advertised on TikTok. The shop was not successful, but between the two of them, their other businesses were doing okay. These people were poor, but they did not have the poverty mindset of the others.

cosmojg 3y ago

> Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window. If they don't have that information, they can't have time preference. Lenders will be reluctant to lend at "market clearing" interest rates and consistently demand a premium giving the rise to usury. If everything required perfect knowledge to be actionably modeled, humans wouldn't do anything. At the very least, markets wouldn't clear. In practice, the realized price of time preference is typically a fraction (or multiple) of its full value, proportionally reflecting the uncertainty involved in its estimation. This is true of all factors involved in the pricing of any marketable asset, not just time preference and not just loans.