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Take our standard sequence problem SP and consider the specific example of the consump- tion savings problem SP 1. The utility function is log and
Take our standard sequence problem SP and consider the specific example of the consump- tion savings problem SP 1. The utility function is log and reads u(c) = log c. Assume w = D =0. 1. Write the problem as a Bellman Equation (BE). 2. Use the Bellman Equation approach (i.e. method of undetermined coefficients) to find a recursive solution to SP 1. 3. Argue carefully that you have indeed found the solution to the (BE). 4. Iterate on the value function: take an initial guess vo(a) = 0 and compute Tvo for n = {1, 2, 3}. Compare your result to the exact solution
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