Recent survey evidence suggests that personal experiences have a strong influence on

the individual’s attitude towards time and impatience. Embedding this feature in a general

equilibrium model, we show that even a small fraction of time-inconsistent investors with

time-varying degree of short-termism cause variation in discount rates over time. As a

result, the consumption of time-consistent agents is negatively correlated with discount

rates, and therefore they require a compensation for this extra risk. In a setting with

Epstein-Zin utility and constant risk preferences this risk helps to explain a plethora of

asset pricing puzzles, even when consumption and dividend growth are i.i.d. In particular,

it generates a substantial time-varying risk premium, variance premium, cross-sectional

predictability, upward sloping yield curve, and high trading volume. A unique prediction

of our model is that the forecast error of expected consumption growth, proxied by the

subjective consumption growth mean and standard deviation, can forecast the excess market

return and real risk-free rate, which we show finds support in actual US survey data.