Question
I need help to figure out how to solve the questions below as part of the course Behavioral Economics . Information: On day 1, Jie
I need help to figure out how to solve the questions below as part of the course Behavioral Economics.
Information:
On day 1, Jie has to decide his investment plan.
He has two options: Option I and Option II.
The two options will provide him with different payoff flows according to the following table.
Suppose Jie's initial wealth level is 0 and his reference point is 0.
Option I is flexible so that Jie can quit at any time after he chooses to join this option.
However, Option II is inflexible in the sense that Jie cannot quit once he chooses to join this option.
For both options, Jie can choose to join at any day. Jie is risk neutral and is extremely patient ( delta = 1 ).
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