Lecture #13.pdf - Choice over time Economics 4374 October 3 2019(Econ 4374 Lecture 13 Choice over time October 3 2019 1 12 Outline 1 Announcements 2

Lecture #13.pdf - Choice over time Economics 4374 October 3...

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Choice over time Economics 4374 October 3, 2019 (Econ 4374) Lecture 13 - Choice over time October 3, 2019 1 / 12
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Outline 1 Announcements 2 Addiction 3 Projection Bias and Addiction 4 Initiation and quit cycles in addiction Addiction and Commitment Devices Projection Bias and Adaptation (Econ 4374) Lecture 13 - Choice over time October 3, 2019 2 / 12
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Announcements Announcements Midterm next Thursday I Bring a pen or pencil I No calculators, will provide scratch papers, I Example questions will be posted on Blackboard Assignment 7 is posted online, due Tuesday, October 15. It MUST be turned in during class. (Econ 4374) Lecture 13 - Choice over time October 3, 2019 3 / 12
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Announcements Contest Write down a number between 0 and 100 Also write your name The person whose number is closest to 2/3 of the average of all of the numbers (including their own) will get $10. (Econ 4374) Lecture 13 - Choice over time October 3, 2019 4 / 12
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Announcements An Example with Hunger Willingness to pay for a burger Two states, hungry (H) and not hungry (N). Consumption c t is over burgers and money, with u ( c t , H ) = 5 · (# of burgers) + $ u ( c t , N ) = (# of burgers) + $ . This means that the person is willing to pay $5 for a burger when hungry, and $1 when not hungry. Why? Suppose α = 3 / 4, and the person isn’t hungry. What’s the most expensive burger she’s willing to order for tonight, when she’ll be hungry? She thinks her utility function will be 3 4 u ( c t , N ) + 1 4 u ( c t , H ) = 2 · (# of burgers) + $ , so she’s willing to order at most a $2 burger. (Econ 4374) Lecture 13 - Choice over time October 3, 2019 5 / 12
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Addiction Addiction How can projection bias be used to explain addiction? How can hyperbolic discounting be used to explain addiction?
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  • Willa Friedman

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