Question

(i) Describe the prescription of rationality for the inter-temporal choices. (ii) Which are the theoretical models that account for preference reversal in inter-temporal choices? Provide a description of the models.

Answer 1

Part A

We know that the rationality of consumer behavior states that decision making is based on the choices that will give an optimal level of utility to the individual. Many of the utility theories are based on rationality in consumer behavior. Rationality behavior and inter-temporal choice are poor guides for individuals. It is because the rational behavior will devalue the future outcome of the individuals.

Part B

The theoretical models for preference reversal are a Game theory, behavioral economic models, experimental economics, and neuroeconomics. The preference reverse model states that varying buying and selling price of bet or lotteries. If two gambles people are preferring more winning probability gambles and charge a higher price.