Intertemporal Choice

What is a ‘Intertemporal

Intertemporal choice is an economic term describing how the current decision affect what will appear in the future. Theoretically, today is not consumed, the level of consumption may increase substantially in the future, and Vice versa.

Breaking down the ‘Intertemporal

For individuals, these decisions relate more to saving and retirement, while for firms, various investment decisions involve intertemporal choice.

For example, a person who saves today consumes less, causing his or her current utility to decline. Over time, savings grow, increasing the number of goods people can consume and therefore the future utility man.

Ways short-term Intertemporal choices can affect long-term prospects

People tend to be limited by budget constraints that prevent them from drinking to the best of their desires. Preferring on current consumption leads many people to make intertemporal choices that take into account short term needs and desires.

If one makes excessive purchases, for example, pays for round-the-world vacation, which exceeds the normal budget and require additional funding to cover this may have a significant impact on their long-term wealth. They can take a personal loan, high credit card, or even withdraw funds from retirement accounts to cover expenses.

Making this choice will reduce the assets they need to continue to save for their retirement. They can Finance additional income to increase his salary to compensate for the drop in their assets.

This can be aggravated if there are unforeseen events that affect their current income. Sudden job loss, for example, it would be difficult to recoup past expenses and to save for retirement. If the customer makes a substantial purchase, and then dismissed, their intertemporal choice combined with these external factors are, to change your future possibilities.

Maybe they planned to retire at a certain age or were on the way to pay for the mortgage. The shortfall may mean postponing retirement or take a second loan to help cope with more pressing issues.

Decisions on employment can also affect intertemporal choice. A professional can show the ability to work with different wages depending on the intensity and work requirements. One position can be high stress with time is required, but payment may be higher than the standard for such a post. As of intertemporal choice, taking such work could give more options later retirement plans. Conversely, taking a job that offers lower wages, but the balance of work and personal life can mean fewer options for retirement with less available funding.

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