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Microeconomics
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Course / Week 11: Behavioral Economics; Health Economics / Problem Set 11

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Time consistent preferences
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Problem Set due Apr 3, 2024 07:30 +08 Completed

Problem PS11.1.1a
2/2 points (graded)
Adwoa's friend tells her that 2001: A Space Odyssey is good. Adwoa is trying to decide between reading the book and
watching the movie.

Assume that the movie yields an immediate utility of 1 in the single period (single day) during which Adwoa watches it,
and a utility of 0 thereafter.

Assume that the book yields a utility of 0.1 for each of 100 periods during which she reads it, and a utility of 0 thereafter.

Adwoa's utility function at time is , representing the fact that she discounts the utility
of future consumption.

First, suppose that and .

What is Adwoa's present value of seeing the movie today?

1 

What is Adwoa's present value of reading the book, starting today?

0.6748 

Submit You have used 1 of 2 attempts

Problem PS11.1.1b
1/1 point (graded)
Which will she choose today?

She is indifferent

The book

The movie

Submit You have used 1 of 1 attempt

Problem PS11.1.2a
2/2 points (graded)
What is Adwoa's present value of seeing the movie tomorrow (one period from now)?

0.46 

What is Adwoa's present value of reading the book, starting tomorrow (one period from now)?

0.574862 
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 Submit You have used 2 of 2 attempts

Problem PS11.1.2b
1/1 point (graded)
Which does she plan to choose tomorrow?

She is indifferent

The book

The movie

Submit You have used 1 of 1 attempt

Problem PS11.1.3
2/2 points (graded)
Which does she actually choose tomorrow?

She is indifferent

The book

The movie

This utility function is time inconsistent. Did this particular example actually demonstrate time inconsistency?

Yes

No

Submit You have used 1 of 1 attempt

Problem PS11.1.4a
2/2 points (graded)
Now suppose that and .

What is Adwoa's present value of seeing the movie today?

1 

What is Adwoa's present value of reading the book, starting today?

0.192 

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 Submit You have used 1 of 2 attempts

Problem PS11.1.4b
1/1 point (graded)
Which will she choose today?

She is indifferent

The book

The movie

Submit You have used 1 of 1 attempt

Problem PS11.1.5a
2/2 points (graded)
What is Adwoa's present value of seeing the movie tomorrow (one period from now)?

0.46 

What is Adwoa's present value of reading the book, starting tomorrow (one period from now)?

0.092 

Submit You have used 2 of 2 attempts

Problem PS11.1.5b
1/1 point (graded)
Which does she plan to choose tomorrow?

She is indifferent

The book

The movie

Submit You have used 1 of 1 attempt

Problem PS11.1.6
2/2 points (graded)
Which does she actually choose tomorrow?

She is indifferent

The book Calculator

 The movie

This utility function is time inconsistent. Did this particular example actually demonstrate time inconsistency?

Yes

No

Submit You have used 1 of 1 attempt

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