Section3 - Department of Economics University of...

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Unformatted text preview: Department of Economics University of California, Berkeley GSI: Josh Tasoff Spring 2010 Econ 119 Last Updated: 3/1/10 Section Notes 3 1 Agenda 1. Announcements 2. Questions? 3. Quick conclusion to Hyperbolic Discounting 4. Anticipatory Utility Practice 5. Projection Bias Practice 2 Announcements 1. Read the Lecture Notes on bspace. 2. Problem Set 1 has not been graded but will be available soon. 3. Problem Set 2 is due Thursday, March 4th in lecture. Problem Set 2 suggestions: As a grader, we like it best if you keep answers terse and to the point with key words underlined. Underlining really helps. Use staples. 4. Next week well answer your questions and review the material. 5. You will not receive your graded Problem Set 2 back before the midterm but solutions will be available on bspace. 6. The midterm will be on reference-dependent preferences, experimental methods, hyperbolic discounting, anticipatory utility, and projection bias. 1 Department of Economics University of California, Berkeley GSI: Josh Tasoff Spring 2010 Econ 119 Last Updated: 3/1/10 3 Anticipatory Utility Practice The main idea of anticipatory utility is that a person experiences pleasure and pain in the present from future consumption. A key issue regarding future consumption is that it may be uncertain. Since future consumption has not yet actually occurred, the anticipatory utility does not come from the future consumption directly, but rather from beliefs about future consumption. What are beliefs? Economists model beliefs as a probability distribution over something, like outcomes or states of the world (e.g. getting HIV, or the Dow Jones average tomorrow). Information changes peoples beliefs (e.g. taking an HIV test changes ones beliefs about whether one has HIV, and reading the business section of the NY Times changes ones beliefs about the Dow Jones average). When it comes to beliefs and anticipatory utility, there are two ways that economists typically model the belief formation process. Beliefs can either be rational or not. In the problem below we will explore both of these....
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Section3 - Department of Economics University of...

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