A few months back, my car refused to start, so I called the regular mechanic. After taking a look at it, he said the car wouldn’t start because the car’s kick starter was faulty. He promised to install a brand new one. He would go purchase it, take it to the car and replace it. However, once we left the car, he drove the car out of there: the same car that allegedly could not move. We found out about this a week after, so he ended up getting paid for lying to us and changing nothing. After that incident, we resolved never to call him to repair any vehicular issue. He got the money in the short run, but in the long run, he lost the business relationship and any potential future revenue.
This episode got me thinking about the other similar episodes that had occurred since I moved back to Nigeria: the tailor who used the wrong thread to sew my cloth in order to reduce his own cost; the plumber who buys a ‘chinese’ machine instead of a genuine one; and the fish seller that ‘forgets’ to include the full purchase in the bag.
On face value, it made no sense to me that people would eat their seeds now in sacrifice of a future harvest, but I remembered a model from my Advanced Macroeconomics Class that perfectly explained such behavior. It’s called the time preference/discounting model.
In economics, time preference (or “discounting”) is the relative valuation placed on a good later compared to presently. So someone with a high time preference is focused substantially on his well-being in the present and the immediate future relative to the average person, while someone with low time preference places more emphasis than average on their well-being in the further future. The Time-Discount model illustrates such behavior.
If time is discrete and utility is time-separable, with the discount function, f(t) and with c(t) defined as consumption at time t, total utility is given by
This equation simply means that utility over a given period or discrete time is not solely dependent on consumption, but consumption as a function of time.
For those who see economic models like hieroglyphics, I’ll simplify this model using the story of the mechanic. The mechanic had a high time preference because he was more concerned about presently making as much money as possible rather than building a strong contact that would yield future revenues. And just like the mechanic, many Nigerians have a high time preference. We are more concerned with what happens in the now compared to what happens in the future. Consequently, people time-discount a lot and end up shafting others. I’ll bet my life that every one of you reading this post has had a similar ‘mechanic’ experience. Getting duped by someone who renders you a service seems to be a normal part of life in Nigeria.
Does this mean that Nigerians are inherently greedy and shortsighted? No. Our propensity to time-discount is simply a function of uncertainty. Uncertainty is an important factor in the time discounting model. In an economically unstable nation, people are more likely to time discount. When you’re not sure if you’ll still have your job next month, the urge to cheat and immediately obtain money gets stronger. The mechanic isn’t sure he’ll get another call in the future, so he’ll try to maximize his present utility aka how much money he can suck off you in the present. The driver isn’t sure he’ll be employed next month, so he’ll steal his boss’ car and run to the village. The accountant who siphons money from the company cause he’s uncertain if the company won’t shut down in the next month. The graduate isn’t sure he’ll get a job in the future, so he’ll start robbing to satisfy his present utility. The politician doesn’t know if he’ll get reelected, so he’ll steal as much money as he can now to satisfy his present utility (as well as that of his great-great-great grandchildren’s). You get the pattern. Uncertainty about the future makes us focus more on the now and make rather questionable decisions…decisions that end up detrimentally affecting our future utility.
The implication of ‘uncertainty about the future’ should scare us all as Nigeria plummets into political uncertainty (just look at the Nigerian Governors Forum debacle), security uncertainty (Boko Haram bombings) and economic uncertainty (rising unemployment). Talking about economic uncertainty, a batch of corpers nationwide is about to pass out next week. Sadly, the only thing most of them will be certain of is the absence of a job in the following months.