Intertemporal Choice
Candlefocus EditorIntertemporal choice is based on the idea that people are myopic; that is, they tend to be occupied with the present, preferring immediate pleasure to the rewards of delayed gratification. This means that people tend to favor near-term payoffs over those that accrue in the future, even if they are the same.
The concept of intertemporal choice has been used to explain decisions in economics, such as the individual’s preference for consuming goods today, at the expense of savings. It can also explain why some people take out high-interest loan options to finance current purchases, instead of investing money in a different instrument, such as stocks or bonds, that would yield greater rewards in the future.
In psychology, this concept can be used to explain a wide variety of behavior, from the decision to buy a candy bar now instead of having a nice meal later, to the decision to purchase an expensive car or luxury item that the buyer cannot afford, leading to a greater debt load for years to come.
Intertemporal choice is often seen as a critical part of life's decisions. Optimal decision-making involves leaving current consumption at a level that is sustainable in the future. Individuals should be able to understand the trade-off between current and future consumption. Making an informed and rational intertemporal choice is a necessary part of managing finances and building wealth.
Thus, the ability to effectively and wisely utilize intertemporal choice equips people with an important tool to make decisions that may lead to greater financial success over the long term. By using the concept of intertemporal choice, people can opt to invest more, save more, and even enjoy more today. Doing so will help to ensure financial stability and security in the future.