42 | Time Preference is THE Key (TP01)

Time preference could be the key to unlocking health, wealth, and fulfilment. 

Explore the power of delayed gratification and how it influences every aspect of your life. 

Learn about the profound consequences of making choices with a low or high time preference and uncover the illusion of sacrifice when delaying gratification. 

Unravel the transformative power of compounding and how understanding time preference can lead to better decision-making and ultimately help you tap into your full potential. 

Don't miss this insightful episode – your future self will thank you!

This podcast was originally a YouTube video on the Craig Van channel.

Head over to craigvan.com to find the written essay version and the rest of Craig's published work.

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Transcript

What separates the mediocre from the magnificent?

How do some people achieve things which are so much greater, seemingly almost irreducible to the actions of a single human being on a day-to-day basis?

And what is the difference between people who are slaves to their addictions and reactions, and people who are masters of their destiny, future and dreams?

Is there any principle which connects health, wealth, and happiness?

I believe there is. Let me explain.

Time preference is a thread which runs through all of the questions I've just answered, but what is time preference?

Time preference is originally and primarily an economics term, and it describes the value placed on receiving a good or cash at an early or later.

To expand on that, a low time preference indicates a preference for delayed gratification. So we have a low preference for receiving the value now in this time, and we then prioritize the long-term goals over our immediate reward.

Inversely, a high time preference indicates a preference for immediate gratification, prioritizing the short term over the long term.

This simple idea turns out to have far-reaching profound consequences and implications.

Now, the most simple example that we're all familiar with, if we save money in a bank, or we, we loan money to someone, then we earn interest on that money because we have foregone the ability to spend that money or to use that money for anything in the short term while it's not in our possession. And we've exchanged that ability to use that money for immediate benefits for receiving extra interest on that money over a much longer term. Once again, inversely, if we were on the other side of that transaction, if we were borrowing the money so that we can access immediate value now with that money, we are then going to pay a higher price for borrowing that money immediately, by paying interest on that money over time to the borrower.

And this very simple economics principle encapsulates so much of what happens when we choose to extract benefits now over later.

There is some universal law at play here, it would seem the short term immediately gratifying actions come at a price and there is almost always a reward if we choose to delay that gratification.

There is some thermodynamic energetic law of nature at play because this principle, as I've investigated it more deeply, more thoroughly, more broadly, I see it playing out in every domain of our lives, in all of the choices we make.

I haven't found any action or choice where this principle of increased benefits for delaying gratification or value over immediate satisfaction or gratification, I haven't seen any domain in our lives where our behavior, our choices are not governed, and do not submit to this law, to this principle.

I don't think anybody likes the idea, or even the sound of the words delayed gratification. But we do all appreciate intuitively, or subconsciously , that delayed gratification is noble or will bring more benefits, that it's something to strive for.

And I believe that is true, that this is a a highly valuable characteristic or trait for us to develop. But by understanding human behavior and choice through this lens, by looking at our lives with the understanding of this principle, I have gained an improved perspective. And that perspective has allowed me to improve my choices naturally. Going beyond simply forcing myself to be restrained and to go without for now so that I can have something more later. I am now seeing the way my reality operates, and, with that awareness, my choices are naturally improving.

One of the biggest consequences of this, or one of the the biggest benefits of understanding this principle a bit more deeply, and this is something that I'm going to talk about extensively as well, but I really want to mention it now, is that when we understand that, when we give up an immediately gratifying choice for a delayed gratifying choice that the sacrifice we are making in the present moment, in the short term, is not purely sacrifice, it's actually a trade.

We're making an exchange with our future self. We are not just giving something up for nothing. We are gaining something instead of choosing the small benefit now or the unsustainable benefit now, I'm choosing the larger benefit, the more sustainable benefit later.

So, I'm exchanging choices here with my present self and my future self. The sacrifice is but an illusion. It's only a delay in the returns. It's only a delay in receiving the benefits of my actions.

This understanding that sacrifice is an illusion is really empowering for me, and it might be for you too.

Another very important aspect of this principle is that according to this law of nature, it seems that many of the immediately gratifying actions, the, the short term gains turn out to be unsustainable, that there is this long-term cost. Yes, we can borrow the money now, but we pay a price for that going forward.

And so that's truly unsustainable because, if every decision we make is immediately gratifying, but long-term has a cost, a long-term cost, over a long period. It's not a minute or insubstantial cost that a short-term benefit produces. And if all of our actions are producing these expenses over a long time, our life becomes unsustainable.

Once again, the inverse that when we delay our gratification, when we exchange our immediate benefit for a delayed benefit, there seems to be just as there was a long-term cost, the inverse is a long term gain. And because inherently a sustainable choice, one that's naturally sustainable because it, it's designed to be long term.

It has this ability to compound in the same way when we save our money in the bank and we earn our percentage per month per annum, that that maintains, even as our sum of money grows, as our savings account expands, that percentage that we get in return for saving that money, for delaying our gratification, that percentage doesn't change.

So if, if we have a thousand monies in the bank, or we have a million monies in the bank and we earning 10%, the more money we have, the more we earn. And this is the effect of compounding.

And so it's through this channel of exchanging the immediate for the delayed, and then tapping into the compounding returns of focused, disciplined and intentional action that we can then turn small actions over time into something which becomes profoundly disconnected from what any individual or short term action or choice is capable of achieving. We can access experiences, states, places, relationships, entire lives that just seem unobtainable from a day-to-day basis through this effect of compound.

Albert Einstein with one of his beautiful quotes says, compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.

So there he points out that when we are paying interest, that too compounds.

And this is just a brief introduction to this idea that we are going to explore through all of the domains of the human experience, the domains of health, the domains of wealth, and the domains of happiness.

But where to from here?

This is a nice thing to acknowledge. This is a pretty principle to become aware of, but that's of no value to us. We want to use this principle to change, to change for the better, to change our actions, and that's where we are gonna go next. That's what we need to explore.

How do we play in the realm of success? How do we access deep transformation? How do we strive for greatness? How do we use the principle of time preference to our advantage, towards those ends?

Which are the low time preference actions we need to prioritize at all costs? Which are the high time preference actions, and choices we need to avoid at all costs?

And once we've identified choices and behaviors that we prefer and want to avoid, how do we do that? Changing our behavior is difficult. So how do we use our knowledge of this principle to guide our choices? How do we then change ourselves to behave differently in line with that plan?

These are questions we're gonna explore together in future videos and things you can think about now already. But take the principle of time preference with you through the day.

Start to evaluate the decisions and the choices you make and identify whether they are high time preference or low time preference.

And, think about those high and low time preference choices you are not making, that are not present in your day that you might want to introduce, and I think you'll find what you discover quite interesting.

I definitely have.

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Your future body, mind, and life will be grateful. Till next time, cheers.