During the Ming (1368–1644) dynasty, paper money was swept away by commodity money. 23 This dynamic has also since been replicated across a number of monetary economies, including dollarizing emerging market economies over recent decades. Today, finance faces its own Gresham’s dilemma – the patient or impatient path. Innovation has, of course, transformed finance over the intervening years. Liberalisation has resulted in far greater information and liquidity in financial markets. Perhaps these developments have helped good finance drive out bad, nudging money towards the patience path? Not necessarily. Take information. In an evolutionary game, information is a double-edged sword. It supports the cause of the long-term investor, by allowing them more easily to compare prices with fundamentals. But it also tests the patience of the untested investor subject to regular performance evaluation. Investors whose judgement is right, but whose timing is wrong, stand an increasingly high chance of exiting the game. More frequent information on performance risks contaminating the gene pool, driving out the patient to the benefit of the impatient. Anecdotally at least, performance evaluation intervals have progressively shortened. Over recent decades, companies have migrated from annual general meetings, to a six monthly or quarterly reporting cycle to today’s steady stream of within-cycle trading updates. In finance, information is in general a good thing. But in finance, as in life, it is possible to have too much of a good thing. Liquidity is similarly double-edged. It reduces the impact of momentum trading on prices, thereby increasing market efficiency.

Preferences switch as the distant becomes instant. 5  Weber (1958). 6  Franke et al (2007). 7  Levine (1997). 8  Thaler and Shefrin (1981). 9  McClure, Laibson, Loewenstein and Cohen (2004). 10  For example, Pigou (1920), Ainslie and Haslam (1992) and Laibson (1997). BIS Review 114/2010  3  In these situations, the double-self becomes a practical reality for both animals and humans. Experimental evidence lends strong support. Hyperbolic discounting has been found in such diverse case studies as pigeons pecking corn, students choosing video games, women choosing anaesthesia in childbirth and drug addicts assessing their next fix. 11 Psychiatrically, it may emerge as multiple personality disorders. Addiction is, in some respects, hyperbolic discounting writ large. 12 It is Pigou’s defective telescope being held the wrong way round. Immediate gratification (drugs, alcohol, sex, food) is sought irrespective of the long-term consequences. There is a neurological explanation for such behaviour. Drugs and some foodstuffs flood the brain with dopamine, which stimulates the midbrain associated with instant reward. This might explain why addictive behaviour appears to be more prevalent in humans than in animals. While few squirrels are dieters, even fewer are glue-sniffers. Impatience has implications for economic and financial systems every bit as profound as its well-behaved twin. For economies, hyperbolic discounting would tend to generate undersaving, as people seek instant gratification. And neo-classical growth theory says that undersaving has adverse implications for long-run investment and growth. Some jam today would come at the expense of a whole jam-jar tomorrow.