Dynamic preferences, choice mechanisms, and welfare (Q1389382)

This book studies intertemporal optimization theory. The book is divided into two main parts. The first part surveys the main theories of intertemporal optimization which have been developed over the past thirty years: myopic utility, additive utility, recursive utility, and universal utility. An especially useful part of this survey is the discussion of the empirical implications of each theory. Thus, we learn (this was new to me) that recursive utility does not allow for habit formation a la Becker and Stigler. The second part of the book contains new results due to the author. I point to three such results which I find quite useful. First, we are given a sufficient condition for the existence of a subgame perfect choice (Corollary 7.1). Interestingly, this sufficient condition is not necessary. Second, we are given necessary and sufficient conditions for choice to be contractible, thus making it computable via dynamic programming methods (Theorem 8.3). Third, in the context of changing preferences over time, we are given conditions under which such choices are contractible (Theorem 10.1). This is important because, as the author convincingly argues, only contractible choices can be given an unambiguous welfare interpretation. These are just a sample of the delightful results contained in this work -- which, to my mind, represents the state of the art in intertemporal optimization theory.