In economics, discounted utility is the utility (desirability) of some future event, such as consuming a certain amount of a good, as perceived at the present time as opposed to at the time of its occurrence.
The utility of an event x occurring at future time t under utility function u, discounted back to the present (time 0) using discount factor β, is
Discounted utility calculations made for events at various points in the future as well as at the present take the form
In a typical intertemporal consumption model, the above summation of utilities discounted from various future times would be maximized with respect to the amounts xt consumed in each period, subject to an intertemporal budget constraint that says that the present value of current and future expenditures does not exceed the present value of financial resources available for spending.
Given the interpretation of economic agents as rational, this exempts time-valuations from rationality judgments, so that someone who spends and borrows voraciously is just as rational as someone who spends and saves moderately, or as someone who hoards his wealth and never spends it: different people have different rates of time preference.
This view is consistent with empirical observations that humans display inconsistent time preferences.