Intertemporal choice

<h2 id="fisher-model">Fisher model</h2>
<h3>Assumptions of the model</h3>
<ol><li>consumer's income is constant</li>
<li>maximization of the utility</li>
<li>anything above the line is out of explanation</li>
<li>investments are generators of savings</li>
<li>any property is indivisible and unchangeable</li></ol>
<p>According to this model there are three types of consumption: past, present and future.
</p><p>When making decisions between present and future consumption, the consumer takes his/her previous consumption into account. 
</p><p>This decision making is based on an <i><a href="/facts/Indifference_map/BhgfCINQ">indifference map</a> with negative slope</i> because if he consumes something today it means that he can't consume it in the future and vice versa.
</p><p>The revenue is in form of interest rate. Nominal interest rate - inflation  =  real interest rate
</p><p>Denote
</p>
<ul><li>
  
    
      
        r
      
    
    {\displaystyle r}
  
 : interest rate</li>
<li>
  
    
      
        Y
        (
        t
        +
        1
        )
      
    
    {\displaystyle Y(t+1)}
  
 : income in time 
  
    
      
        t
        +
        1
      
    
    {\displaystyle t+1}
  
 or a future income</li>
<li>
  
    
      
        Y
        (
        t
        )
      
    
    {\displaystyle Y(t)}
  
 : income in time 
  
    
      
        t
      
    
    {\displaystyle t}
  
 or a present income</li></ul>
<p>Then maximum present consumption is: 
  
    
      
        Y
        (
        t
        )
        +
        
          
            
              Y
              (
              t
              +
              1
              )
            
            
              1
              +
              r
            
          
        
      
    
    {\displaystyle Y(t)+{\frac {Y(t+1)}{1+r}}}

</p><p>The maximum future consumption is: 
  
    
      
        (
        1
        +
        r
        )
        Y
        (
        t
        )
        +
        Y
        (
        t
        +
        1
        )
      
    
    {\displaystyle (1+r)Y(t)+Y(t+1)}

</p>
<h2 id="see-also">See also</h2>
<ul><li><a href="/facts/Choice_modelling/XgumrVMY">Choice modelling</a></li>
<li><a href="/facts/Decision_theory/TbXcQX0v">Decision theory</a></li>
<li><a href="/facts/Discount_function/wl3a7e9T">Discount function</a></li>
<li><a href="/facts/Discounted_utility/VprXeEbl">Discounted utility</a></li>
<li><a href="/facts/Intertemporal_budget_constraint/Usr6Yhgb">Intertemporal budget constraint</a></li>
<li><a href="/facts/Keynes%25E2%2580%2593Ramsey_rule/rHG2SqUx">Keynes–Ramsey rule</a></li>
<li><a href="/facts/Temporal_discounting/MeSQfVHB">Temporal discounting</a></li></ul>

Intertemporal choice open-in-new

Intertemporal choice