Question
Penny and Denny are both presented at time = 0 with an opportunity to invest. If they accept, then at = 1 they will make
Penny and Denny are both presented at time = 0 with an opportunity to invest. If they accept, then at = 1 they will make a payment which brings them -22 utility, and then at = 2 they will receive back a payment that brings them 32 utility. If they don't invest, they get 0 utility.
Penny is an exponential discounter, with = 3/4 Denny is a hyperbolic discounter with = 1 and = 10/16. a. As of time = 0, which of them is more impatient for the payoff (which of them discounts period = 2 more heavily as of = 0?) b. As of time = 1, which of them is more impatient for the payoff (which of them discounts period = 2 more heavily as of = 1?) c. In period = 0, will Penny invest? Show your calculation. d. In period = 0, will Denny invest? Show your calculation. e. In period = 1, which of them would want to cancel their investment? How much utility would they be willing to pay to cancel?
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