Suppose that there are three movies each in a week. In week 1, we have Mediocre movie that generates 3 utils (unit of utility). In week 2, we have Good movie that generates 5 utils. In week 3, we have Johnny Depp movie that generates 8 utils. Assume that the agent has quasi-hyperbolic discounting with B = 0.5 and & = 1, and that the agent must give up exactly one movie and receive 0 util in that week. (a) If the agent is fully naive, which movie will he/she give up? (b) If the agent is fully sophisticated, which movie will he/she give up?

Suppose that there are three movies each in a week. In week 1, we have Mediocre movie that generates 3 utils (unit of utility). In week 2, we have Good movie that generates 5 utils. In week 3, we have Johnny Depp movie that generates 8 utils. Assume that the agent has quasi-hyperbolic discounting with B = 0.5 and & = 1, and that the agent must give up exactly one movie and receive 0 util in that week. (a) If the agent is fully naive, which movie will he/she give up? (b) If the agent is fully sophisticated, which movie will he/she give up?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter10: Consumer Choice Theory

Section: Chapter Questions

Problem 6P

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Ann can finish a project either this week or next week. The delayed rewards are 10 in either case. (The project can be done only once or not at all).Next week is busy and the cost of finishing the project are lower this week. The immediate costs are 4 this week and 6 next week. Ann has a quasi-hyperbolic utility with δ= 1 and β <1. Imagine that Anndoes not finish the project this week. Then she should finish it next week A) if β >0.6; (B) if β >0.4; (C) only if β= 1; (D) for any β.
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