<p>Since I'm doing some research on interest rates and their determinants I've coming to read some &quot;austrian&quot; things about the rate of time preference. In order to investigate further about the topic I wondered if there is a way to calculate this &quot;time preference&quot; rate. In some paper (see for example the one of Carilli and Dempster <a href="https://www.researchgate.net/publication/23534730_Is_the_Austrian_business_cycle_theory_still_relevant#:%7E:text=The%20popularity%20of%20the%20Austrian%20Business%20Cycle%20Theory,analysis%20is%20a%20testament%20to%20its%20intuitive%20appeal." rel="nofollow noreferrer">here</a>)
I found that they calculate this rate by calculating the ratio between consumption and savings. Why they used this method? What is the <em>rationale</em> in calculating the time preference as a ratio between consumption (as a percentage of GDP) and savings (as a percentage of GDP)? Thanks in advance for the answers!</p>

CC BY-SA 4.0
2021-12-22T09:36:52.917Z
How do you define this "time preference rate." Only then will it make sense to discuss calculation methods.
Michael Greinecker
CC BY-SA 4.0
2021-12-22T10:16:38.417Z
@MG makes a good point on clarity.  But nevertheless, you seemed to characterise discounting/time preference pretty well with ratio of consumption/savings. The rationale here is pretty much of one which describes how individuals value today versus tomorrow.
EB3112
CC BY-SA 4.0
2021-12-22T11:04:16.717Z
The actual definition of the time preference rate is something that would need some clarification before I offered input on how to calculate it, but from what I can tell it seems to extrapolate on theoretical intertemporal utility maximization (with intertemporal utility maximization being the bare bones microeconomic application and time preference being a more empirical macroeconomic application). Given that an individual's optimal expenditures over time can be estimated by maximizing their lifetime consumption: L(x1,x2) = (I)x1 + x2 + λ(Human capital production function) where: x1 = today's
chutch
<interest-rate><austrian>
How to calculate time preference?
Giord
# How to calculate time preference?

(Asked by: username_0 on 2021-12-22)

Since I'm doing some research on interest rates and their determinants I've coming to read some "austrian" things about the rate of time preference. In order to investigate further about the topic I wondered if there is a way to calculate this "time preference" rate. In some paper (see for example the one of Carilli and Dempster [here](https://www.researchgate.net/publication/23534730_Is_the_Austrian_business_cycle_theory_still_relevant#:%7E:text=The%20popularity%20of%20the%20Austrian%20Business%20Cycle%20Theory,analysis%20is%20a%20testament%20to%20its%20intuitive%20appeal.))
I found that they calculate this rate by calculating the ratio between consumption and savings. Why they used this method? What is the *rationale* in calculating the time preference as a ratio between consumption (as a percentage of GDP) and savings (as a percentage of GDP)? Thanks in advance for the answers!

**Tags:** interest-rate, austrian

> **Comments:**
> **username_1**: How do you define this "time preference rate." Only then will it make sense to discuss calculation methods.  
> **username_2**: @MG makes a good point on clarity.  But nevertheless, you seemed to characterise discounting/time preference pretty well with ratio of consumption/savings. The rationale here is pretty much of one which describes how individuals value today versus tomorrow.  
> **username_3**: The actual definition of the time preference rate is something that would need some clarification before I offered input on how to calculate it, but from what I can tell it seems to extrapolate on theoretical intertemporal utility maximization (with intertemporal utility maximization being the bare bones microeconomic application and time preference being a more empirical macroeconomic application). Given that an individual's optimal expenditures over time can be estimated by maximizing their lifetime consumption: L(x1,x2) = (I)x1 + x2 + λ(Human capital production function) where: x1 = today's  

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