Think about the standard way economists model investor preferences. A person cares about how much they consume each year. They have a fixed level of risk aversion (how much they dislike uncertainty) and a fixed willingness to move consumption from one year to another. These simple assumptions give clean formulas. But they can’t easily explain why stocks earn so much more than bonds, or why the extra return for holding stocks (the risk premium) jumps up during recessions. This chapter introduces two ideas that separate risk aversion from the desire to shift consumption over time, and that make today’s appetite for spending depend on what you spent yesterday. The result is a set of models that match what we actually see in financial markets much better.