A utility-maximizing consumer would not choose the investment that maximizes the present value of her income stream unless she planned to spend her entire wealth in the first period.

Question

Quizplus · Accepted Answer

A utility-maximizing consumer would choose the investment that maximizes the present value of her expected utility, which may not necessarily be the investment that maximizes the present value of her income stream. The consumer may choose to save or invest some of her wealth for future periods, and therefore would consider the time-value of money in her decision-making process.

A Utility-Maximizing Consumer Would Not Choose the Investment That Maximizes