Explain how the consumption has been viewed differently by the economists as far as the intertemporal choice is concerned.
Economists have different perspectives on consumption and intertemporal choice, which refers to the decision-making process involving trade-offs between present and future consumption.
1. Classical economists: Classical economists, such as Adam Smith and David Ricardo, view consumption as a reflection of current income. They believe that individuals tend to consume most of their current income and save only a small portion for future needs. Their perspective is primarily focused on the short run.
2. Keynesian economists: Keynesian economists, including John Maynard Keynes, highlight the role of expectations and income in consumption decisions. They argue that consumption is driven by both current income and anticipated future income. Keynesians emphasize the importance of aggregate demand to stimulate economic growth and advocate for policies that boost consumer spending during periods of economic downturns.
3. Neoclassical economists: Neoclassical economists, building on the ideas of Irving Fisher and Frank Knight, view intertemporal choice as a result of rational decision-making. They believe that individuals weigh present and future consumption based on their preferences and expectations about future income and interest rates. Neoclassical economists emphasize the concept of lifecycle consumption, where individuals aim to smooth their consumption patterns over their lifetime, adjusting for income fluctuations and expected changes in income.
4. Behavioral economists: Behavioral economists, such as Richard Thaler and Daniel Kahneman, take into account psychological factors and deviations from rationality in consumption decisions. They argue that individuals often exhibit biases and irrational behaviors, leading to suboptimal intertemporal choices. Behavioral economists explore phenomena like hyperbolic discounting, where individuals have a stronger preference for immediate gratification over future benefits, impacting their consumption decisions.
Overall, economists have differing views on intertemporal consumption choices, ranging from a focus on short-run income effects to considering rational decision-making and behavioral biases. These perspectives shape theories and policy recommendations concerning savings, investment, and economic growth.