The prime objective behind studying the intertemporal choice is to realize that how the various choices are made by the consumers. It also suggests how the choices should be made. A conventional study on intertemporal choice says that the delaying effect of the future outcome value that is subjective in nature is generally addressed by the discount function. This plays a vital role in the decision making in case of intertemporal choice.
The theory of intertemporal choice and saving also define a decision that is required to exchange among various outcomes that may influence at various times. There are various assumptions considered while defining the intertemporal choice model. The Fisher model of intertemporal choice considers the following assumptions:
- Income of consumer is constant
- Anything that comes above the line is beyond explanation
- Utility is maximized
- The property is unchangeable and indivisible
- Investments generate savings
The nature of decision making can be explained with the help of indifference map where the slope considered is negative. This is because if the consumer consumes something in the present, he will not consume the same good in the future. It has been seen that the households generally give preference to the present consumption than the future consumption. But considering the revenue that the invested savings can earn is the most crucial reason behind giving preference to future consumption.
