Time Preference and Time Consistency:

Abstract

On the Rationality of Sequential ChoiceThe paper discusses the problem of discounting, time preference, and time consistent decision making. While a constant pure rate of time preference leads to consistent consumption plans, other discounting schemes - like hyperbolic discounting - do not. Using a so-called money pump argument, time inconsistencies can be shown to be irrational. The paper also explores the use of a hedonic utility concept to explain sequential choice behaviour.