When the armed forces downsized in the 1990s, the Department of Defense offered thousands of military personnel a choice of severance packages. The individual could accept an immediate lump-sum payment of $50,000 or instead $8,000 per year for 30 years. (In the event of death, the annuity would continue to pay to the individual's named recipient.) Which package would you choose? Explain exactly how you would determine your choice.

b. In counseling its personnel, the military provided pamphlets comparing the financial implications of the two plans. In making the comparisons, it used the prevailing interest rate on money market funds (a risk-free 7 percent rate at the time). Despite the military's recommendation of the annuity, about 70 percent of enlisted personnel and 50 percent of officers chose the lump sum. In your view, does this behavior make financial sense? Can you suggest reasons (rational or irrational), why individuals tended to choose the immediate financial reward?