Dr. Paul Kaplan
speaker
479 appearances
1 recordings
1 series
first heard Jul 2026
last heard 9 Jul
Dr. Paul Kaplan’s voice in public audio — every appearance, attributed to the second.
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Appearances
But when we do the mathematical optimization, what we find is that the optimal solution is smooth consumption.
And that could mean constant consumption over your life, or it could mean consumption growing or shrinking at some rate.
That's the question I was just reading before I was trying to get at.
That's how it is.
So you're looking at consumption holistically over the course of your lifetime and you're taking into account how much benefits you're receiving from consumption each year.
and your intertemporal budget constraint too.
This is actually one of the most fundamental principles in economics, not just in life cycle theory.
Every actor in the economy, they face a budget constraint.
You can't buy an infinite amount of anything.
There are trade-offs.
Some of the trade-offs might be between food and clothing or whatever, but here the trade-offs are between consumption
in one year, consumption in two years, consumption in three years, and so on.
So those are the things that we're trying to juggle, but we have to do it in a way that's consistent with our intertemporal budget constraint.
We can't spend more than we have.
Yeah, they would have different life cycle plans, even if their circumstances are the same.
And one of the ways I like to kind of summarize, what does life cycle finance take into account?
It takes into account three things, preferences, needs, which is the money you must spend on your essentials.
So we call that non-discursive consumption.
Present discount value of that is liabilities.
And circumstances.
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