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(Consumption decisions, value of information) Suppose you are born, live for two periods, t = 0, 1, and die. Your income in the rst period
(Consumption decisions, value of information) Suppose you are born, live for two periods, t = 0, 1, and die. Your income in the rst period y0 = 10, your income in the second period is uncertain at rst: y1 can be either =10 or =14 with equal probability. Your utility is U (c0, c1) = ln c0 ln c1. There is no discounting of the future. You can borrow and lend at a zero risk-free rate, but you must pay your debts before you die. (a) Find the optimal consumption path: how much you would choose to consume in the rst period (c0) and in the second period (c1)
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