Answer to Question #100494 in Macroeconomics for Maryum

Question

Uncertainty about future income does not affect consumption. Does this mean that the uncertainty does not effect expected lifetime utility?

Answer 1

Uncertainty does not affect expected lifetime utility. Although survival probability below unity imply a discount on future utility, they imply a corresponding discount in the budget constraint on future income and expenditure. There is no effect of uncertain lifetime on the preference for current consumption relative to future consumption.