Intro to bounded willpower after class

Intro to bounded willpower after class - This section of...

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This section of the course focuses on a completely new dimension of preference maximization: Maximizing consumption over time. 1
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Each level of now and later consumption is like a different “consumption stream.” Whereas our maximization problem in the Bounded Rationality section was to choose the option that had the highest utility number, now we will try to choose the consumption stream that gives us the highest utility number. For example, the “lifecycle hypothesis” in economics, crudely stated, is that you will consume a more or less constant proportion of your lifetime income. Suppose that the utility from consumption is decreasing on the margin. You will want to accrue debt as a younger person, borrowing against the expectation of your future earnings so that you can consume more now. In your prime earning years, you will save money, so that you will be able to consume more after retirement. In practice, consumption might be a little bumpier. Perhaps living conditions for people are a bit more
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Intro to bounded willpower after class - This section of...

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