ABSTRACT
This chapter on intertemporal choice explores evidence from laboratory experiments that the standard discounted utility model is often consistently inconsistent with actual behavior. The discrepancies between the predictions of the discounted utility model and empirical evidence constitute anomalies for the standard economic model. The following anomalies are identified: time effects (e.g., preference reversals and self-control problems), magnitude effects, sign effects, and a preference for improving sequences. The chapter concludes with an analysis of the standard life-cycle model predictions for consumption and saving behavior over one’s life, and the conflicting evidence. Taken together, the evidence challenges the standard assumptions of constant (exponential) discounting and consumption independence.
