Intertemporal Choice - A Nash Bargaining Approach

Release date
01/09/2010
Reference
DP2010/08
Author
David Baqaee
A compelling, but highly tractable, axiomatic foundation for intertemporal decision making is established and discussed. This axiomatic foundation relies on methods employed in cooperative bargaining theory. Four simple axioms imply that the intertemporal objective function is a weighted geometric average of each period's utility function. This is in contrast to standard practice, which takes the objective function to be a weighted arithmetic average. The analysis covers both finite and infinite time.