Students on the night before an exam, architects under pressure to submit a design or consultants on the eve of the deadline for responding to a tender would all be willing to pay anything up to several thousand euros for an extra day. Yet if they had the choice, a few months ahead of the deadline, they would have been indifferent between the specified date and the following day, and would probably not have been willing to pay a single euro to obtain twenty-four hours leeway. This difference in attitude stems from a typical time-inconsistency situation. Choices made today for the future are not necessarily consistent with those that will be made in the future, in the sense that even if all the expectations pertaining at the time of the initial decision are in fact realized, these choices can nevertheless be reconsidered in the future.

In literature, this inconsistency is perfectly illustrated by Homer’s Odyssey, when Ulysses asks his companions to tie him to the mast of his ship to avoid succumbing to the song of the sirens. He knows, in fact, that what he wants today, namely to resist the sirens, will no longer be the case when he begins hearing their song and his only desire will then be to join them. The resolution of this conflict between his present and future desires entails restricting his future freedom. By ruling out a potential choice for the future – joining the sirens –, he makes his optimum from today’s standpoint – listening to their song and not drowning – compatible with his optimum tomorrow. This allegory perfectly illustrates two phenomena characteristic of intertemporal decision-making that play a major role in the context of long-term decisions.

  • Decisions made today for tomorrow are not necessarily compatible with those that will be optimal from the standpoint of the future: “Tomorrow I’ll stop smoking / begin a diet / start taking exercise!”
  • Unlike in static models or standard dynamic models (which are in fact quasi-static), constraining the decision does not necessarily reduce welfare but may, on the contrary, allow consistency to be restored between different time horizons and different stages in the context of a gradual decision process.

Elyès Jouini

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