Last Christmas both you and your sister received gift vouchers to see three tennis matches at Wimbledon. Assume that all matches cost the same price and you have the following choice. You can choose to watch a game from the fourth round today, which will give you a utility of 9, a game from the quarter-finals in a week's time, which will give you a utility of 15, a game from the semi-final in two weeks' time, which will give you a utility of 24, and the final in three weeks' time, which will give you a utility of 39. For (a)-(c) to get the full points you need to write down the formulas you are using, all the steps of your calculations, and explain briefly. (a) Your sister is an exponential discounter with 6=0.8. Which three rounds will she choose to watch? Will she change her mind as the tournament progresses (only on the basis of the info given here)? (b) You are a naive hyperbolic discounter with 8=1 and B=1/2. Which three rounds will you choose to watch? Will you change your mind as the tournament progresses (only on the basis of the info given here)? (c) Your sister tells you that you should try to be sophisticated rather than nave about your Wimbledon plans. What does she propose you consider (keeping your own parameters and preferences fixed)? What will you decide if you follow her advice? (d) Explain the differences in your and your sister's time preferences. (Answer to (d) should be no more than 2 sentences.) Last Christmas both you and your sister received gift vouchers to see three tennis matches at Wimbledon. Assume that all matches cost the same price and you have the following choice. You can choose to watch a game from the fourth round today, which will give you a utility of 9, a game from the quarter-finals in a week's time, which will give you a utility of 15, a game from the semi-final in two weeks' time, which will give you a utility of 24, and the final in three weeks' time, which will give you a utility of 39. For (a)-(c) to get the full points you need to write down the formulas you are using, all the steps of your calculations, and explain briefly. (a) Your sister is an exponential discounter with 6=0.8. Which three rounds will she choose to watch? Will she change her mind as the tournament progresses (only on the basis of the info given here)? (b) You are a naive hyperbolic discounter with 8=1 and B=1/2. Which three rounds will you choose to watch? Will you change your mind as the tournament progresses (only on the basis of the info given here)? (c) Your sister tells you that you should try to be sophisticated rather than nave about your Wimbledon plans. What does she propose you consider (keeping your own parameters and preferences fixed)? What will you decide if you follow her advice? (d) Explain the differences in your and your sister's time preferences. (Answer to (d) should be no more than 2 sentences.)
