Irving Fisher and Intertemporal Choice
Contrary to Keynes, who related consumption to
current income, Fisher’s model showed how rational forward
looking consumers chooses consumption for the present and
future to maximize their lifetime satisfaction.
To illustrate Fisher’s intertemporal choice, let’s assume
that an individual’s lifetime is made up of two time
periods, current (c) future(f); (ii) the individual has a current
income (Yc) and a current consumption (Cc) as well as a future
income (Yf) and a future consumption (Cf); (iii) the individual
can borrow or save in the first period at the same real interest rate
( r), which is positive.
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