Homework Review Question

You have a paper that is due Monday. You are trying to decide which plan you want to make for the weekend: i) to write a paper over Saturday and Sunday, or ii) write it only on Sunday. =2/3 and =3/4. Your utility in each time period is given by the following (in utils):

a) Write down a two-period utility function for someone with - preferences.

b) Assuming you make this decision on Saturday, which plan would you chose? Calculate your utility for each plan and show your work.

c) Write down the three-period utility function for someone with - preferences.

d) Now assume that you make your decision on Friday for your plan for both Saturday and Sunday. Assuming you make this decision on Friday, which plan would you chose? Calculate your utility for each plan and show your work.

e) What type of preferences must you have in order to demand a commitment device? Explain.

f) In the setting outlined in a) d) above, would you benefit from a commitment device in this setting that would prevent you from changing your mind on Saturday once you decided on Friday? Explain.

g) Name and explain the assumption of the exponential discounting model that is violated by -

preferences.

Write on Saturday & Sunday Write Sunday only Saturday 8 14 Sunday 8 -2 Write on Saturday & Sunday Write Sunday only Saturday 8 14 Sunday 8 -2