I’m not clear on how RPTP fits into a general understanding of financial returns on investment. Clearly your RPTP matters, and if you have a lower RPTP than most people, that makes investing look relatively better for you. But why don’t, say, financial advisors ever talk about this? Advisors largely make investment recommendations based on clients’ risk tolerance, which is unrelated to RPTP.
This is a good point. In general I think the hypothesis that people don’t actually have positive RPTP (in contradiction to the received wisdom from most of the economics literature on this) is the most likely way that my argument fails. In particular, I’m aware of some papers (e.g. Gabaix and Laibson 2017) that argue that what looks like discounting might usually be better explained by the fact that future payoffs just come with more uncertainty.
I currently think the balance of evidence is that people do do “pure discounting”. Defending that would be a long discussion, but at least some evidence (e.g. Clark et al. 2016) suggests that pure impatience is a thing, and explains more of the variation in, for example, retirement saving behavior than risk tolerance does.
In response to your particular argument that if RPTP is a thing it’s weird that financial advisers don’t usually ask about it: I agree, that’s interesting evidence in the other direction. One alternative explanation that comes to mind on that front, though, is that, while advisers don’t ask for the RPTP number explicitly, they do ask questions like “how much do you want to make sure you have by age 65?” whose answers will implicitly incorporate pure time preference.
I’m not clear on how RPTP fits into a general understanding of financial returns on investment. Clearly your RPTP matters, and if you have a lower RPTP than most people, that makes investing look relatively better for you. But why don’t, say, financial advisors ever talk about this? Advisors largely make investment recommendations based on clients’ risk tolerance, which is unrelated to RPTP.
This is a good point. In general I think the hypothesis that people don’t actually have positive RPTP (in contradiction to the received wisdom from most of the economics literature on this) is the most likely way that my argument fails. In particular, I’m aware of some papers (e.g. Gabaix and Laibson 2017) that argue that what looks like discounting might usually be better explained by the fact that future payoffs just come with more uncertainty.
I currently think the balance of evidence is that people do do “pure discounting”. Defending that would be a long discussion, but at least some evidence (e.g. Clark et al. 2016) suggests that pure impatience is a thing, and explains more of the variation in, for example, retirement saving behavior than risk tolerance does.
In response to your particular argument that if RPTP is a thing it’s weird that financial advisers don’t usually ask about it: I agree, that’s interesting evidence in the other direction. One alternative explanation that comes to mind on that front, though, is that, while advisers don’t ask for the RPTP number explicitly, they do ask questions like “how much do you want to make sure you have by age 65?” whose answers will implicitly incorporate pure time preference.