Intertemporal Choice
Categories: Financial Theory
See: Intertemporal Substitution Effect.
An intertemporal choice is a choice someone makes when they have to decide what to do at what times, and for how long, and the opportunity costs involved in that decision.
No pressure.
Intertemporal choice is a way that people are irrational in real life. Homo economicus—our rational counterpart—would treat all time as the same, because it knows that every moment will be “now” at some point. In the real world though, people will put things off—procrastinate. We’ll even pay to be able to put something off—do more work later in exchange for doing less work now. That’s just how humans roll.
In economics, intertemporal choice affects how we make all decisions in the real world: how (and if) we save for retirement, which car to buy and when, how much to save now and how much to spend now...everything, really.
Likewise, firms also have to deal with intertemporal choice: when to hire and how many to hire, when to open a second location, etc. In both cases, we’re dealing with how short-term intertemporal choice affects us later down the road.