Jan is a hyperbolic discounter. She puts weight 1 on utility earned in the current period but only weight .5 on utility earned in future periods. In period 1 she comes up with a plan, which involves taking some action that leads to a loss of C utils in period 2 but provides a benefit of B utils in period 3 . What values of B and C will lead her to behave inconsistently and not follow through on her plans?
a. C < B < 2C.
b. B < C.
c. B > 2C.
d. B < C < 2B.
Question 2
An individual has preferences consistent with standard expected utility theory. They have utility function U(x) over wealth x. Starting with initial wealth of 10,000, the person is then faced with two choice problems. The first involves a choice between (A) no gamble and (B) a gamble with an equal chance of winning 1,800 and losing 1,000 . The second choice problem, the person first has 1,000 taken away (resulting in the adjustment of the reference point). The choice is then between (C) being given back 1,000 for sure and (D) an equal chance of winning 2,800 or nothing. What can be said about the choices the person would make?
a. The person would never choose both A and D.
b. The person would never choose both A and C.
c. The person would choose A and D.
d. The person would choose A and C.
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