Question
dwoa'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
dwoa's friend tells her that2001: A Space Odysseyis 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 timet
isU
t
=u(c
t
)+
i=t+1
i
u(c
i
)
, representing the fact that she discounts the utility of future consumption.
First, suppose that=0.5
and=0.92
.
What is Adwoa's present value of seeing the movie today?
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