Time-consistent preferences Time consistency might seem an unrealistic ideal if it means that plans must never change. Q:But what if circumstances change or new information relative to the decision is uncovered? A:As long as past and present selves agree on the best course in a given circumstance,an individual's preferences are time-consistent. Nor is time consistency imperiled by preferences naturally changing over time. Example:Consider a formerly avid tennis player who is aging and is no longer agile enough to play a good game. In his old age he may prefer bocce ball to tennis,but that does not mean his preferences are time-inconsistent. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Time-consistent preferences Time consistency might seem an unrealistic ideal if it means that plans must never change. Q: But what if circumstances change or new information relative to the decision is uncovered? A: As long as past and present selves agree on the best course in a given circumstance, an individual’s preferences are time-consistent. Nor is time consistency imperiled by preferences naturally changing over time. Example: Consider a formerly avid tennis player who is aging and is no longer agile enough to play a good game. In his old age he may prefer bocce ball to tennis, but that does not mean his preferences are time-inconsistent
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Rational addiction Addictive goods,by their very nature,change the utility functions of addicts. Example:Each cigarette an individual smokes today increases his demand for cigarettes tomorrow. This could undermine even the optimal plans of time-consistent individuals. According to Becker and Murphy(1988),as long as we assume that addicts are fully aware of the addictive nature of their favorite goods, addiction does not create time inconsistency. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Rational addiction Addictive goods, by their very nature, change the utility functions of addicts. Example: Each cigarette an individual smokes today increases his demand for cigarettes tomorrow. This could undermine even the optimal plans of time-consistent individuals. According to Becker and Murphy (1988), as long as we assume that addicts are fully aware of the addictive nature of their favorite goods, addiction does not create time inconsistency