People Prefer a Dollar Sooner Than Later But Not Because Interest Can Be Earned

X. Henry Wang, and Bill Z. Yang

This research is intended to clarify the direction of causality between the market interest rate and people's time preferences. It points out that a very popular explanation for why future payments are discounted based on a positive interest rate is logically incorrect and demonstrates that the market interest rate is normally positive precisely because most people prefer a dollar sooner than later. The paper also presents an inclass game that enlivens the standard indifference diagram.