Intertemporal it includes negative issues. For instance; people always

choices in behavioral economics is the study of how people make their choices and
about what and how much to do at some points in time, when making choices at a
time affects the possibilities at other points in time. People have been habits
and preferences that formed in early ages and they can carry them into their
adulthood periods. In fact, they can have profound effects on making their
socioeconomic decisions. In order to clearly understand, people’s decisions
that have consequences in various time periods are called as intertemporal

            Would you prefer to receive $1200
now or $1800 after a year? Does this preference hold if the amount of money is
decreased or increased? Or can this preference change when your choice is
between two goods of corresponding value? What happens to your decisions
whether to receive either two goods or your friend gets both of them? Why do
some people invest in education or save money while other do not? So, questions
like that are pivotal for intertemporal choice. Moreover, there are some
economic research on intertemporal choices that culminated in Fishers theory of
interest (1930) and Discounted Utility model in Samuelsons (1937). I will
shortly summarize them to understand the topics in a better way.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

            Many decisions require
decision-makers to interchange costs and gains at different points in time.
Also, decisions of persons about savings, education, health care, and exercise
are some intertemporal choices. According to Dragone (2009), for example;
should a person sign a contract for the job? The answer is that it relies on
how this person evaluates the impacts of being an employed on present time or
future. Being employed brings some costs as well as benefits. On the one hand,
the benefits include job satisfaction and goods and services that the salaries
allows the people. But, it includes negative issues. For instance; people
always provide a good performance in the work, because of that workers have to
study too much. As the opportunity cost, people have to renounce their leisure


As a model for intertemporal choices, the theory of
discounted utility is the most common pattern in order to analyze it. This
theory has been constructed to describe actual behaviors and socially optimum
ones, respectively, positive economics and normative economics.


            Dragone(2009) states that
there are two popular models that avind similar structures but having
different  assumptions. They are
exponential and hyperbolic discounting models. Their theoretical structure is
that people’s choices depends on their preferences and the assessment of an
alternative relies on the sum of the costs and benefits. Lastly, distant
benefits are less desirable than the closer ones. The main difference between
the models are discount function. The former never changes his/her mind. when
information and choices is unchanged, s/he always does the best preference to
him or her. For the other one, an hyperbolic agent can be driven by temptation
of present and can be time-consistent.


            This is the first time, in
the year of 1937, Samuelson proposed the intertemporal utility function which
is a generalized model of intertemporal choice that applicable to multiple time
periods. In this theory, intertemporal preferences depend on  over consumption profiles like (ct
,…,cT). And this preferences represented by an utility function Ut(ct,…,cT).