Hyperbolic Discounting created 2011.02.28

# Hyperbolic Discounting created 2011.02.28 - Hyperbolic...

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Hyperbolic Discounting Naïve or Sophisticated

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paper. This is an unpleasant task for her since she thinks that she will make her angry if she cannot come up with a nice idea for the paper. She has to talk to her advisor by the end of three weeks to decide her topic. For simplicity, let the first week be t=1, the second week be t=2, and the third week be t=3. Lexi’s cost of talking to her advisor increases with time since Lexi believes that her advisor will have a bad impression of her (not a very responsible student) as Lexi delays her meeting with her advisor. Lexi’s utility from meeting with her advisor on each of these weeks is: U 1 = -4, U 2 = -6, U 3 = -9 Assume that Lexi has hyperbolic preferences with =1/2, and =1. β δ 1. If Lexi is naïve, if you ask Lexi on the first week when is she planning to meet with her advisor, what would be her answer? When she actually ends up meeting? 2.
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## This note was uploaded on 04/15/2011 for the course ECON 73-348 taught by Professor Hafalir during the Spring '11 term at Carnegie Mellon.

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Hyperbolic Discounting created 2011.02.28 - Hyperbolic...

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