Question

Examine Instances where a consumer can exhibit time-inconsistent preferences

Answer 1

By the term 'time - inconsistent preferences ' , we generally define the scenario where consumers act in a self-conflicting manner such that their preferences for a particular situation change with time . An individual might have different choices at different courses of time where one is inconsistent with others . This is highly relevant in Behavioural Economics.  

For example , one may prefer 200 rs. today than 220 rs. in the future but the same individual may act in a completely reverse manner for another set of similar choices , proving himself time-inconsistent .

One possible explanation for this is that individuals always tend to value present time more than future time due to the uncertainty lying in the latter . It essentially shows , difference in perceived utilities , consumers consider achieving from various set of choices before decision-making and in the process may end up disagreeing with previously taken decisions by them.

Basically , this inconsistency arises owing to changes in individual preference over time . One might have preferred alcoholic drinks 5 years before and thus choosing it over other options but if he decides to get rid off this habit over time , he can end up not choosing the same anymore in the present time . Thus this sort of time inconsistency is solely a product of changes in individual choices over time .