Inter-temporal preferences TWO periods model with uncertainty investment Endowment wealth w Period 1: consume c, invest the rest wealth in two assets,(1-x) percentage has a certain return of Ro and x pays a random return of R Period2: C2=W2=(W-C[RX+Ro(1-x)]=(w-CR Utility function: U(, C2)=u(C)+DEu(C2)Inter-temporal preferences • Two periods model with uncertainty investment. – Endowment wealth w. – Period1: consume c1 , invest the rest wealth in two assets, (1-x) percentage has a certain return of R0 and x pays a random return of – Period2: – Utility function: R1 2 2 1 1 0 1 c w w c R x R x w c R = = − + − = − ( )[ (1 )] ( ) 1 2 1 2 U c c u c Eu c ( , ) ( ) ( ) = +