Rubinstein2005-page131

Rubinstein2005-page131 - promised a day later c At any...

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October 21, 2005 12:18 master Sheet number 129 Page number 113 Risk Aversion 113 Problem 4. ( Standard. Based on Rubinstein 2002. ) Adam lives in the Garden of Eden and eats only apples. Time in the garden is discrete ( t = 1, 2, ... ) and apples are eaten only in discrete units. Adam possesses preferences over the set of streams of apple consumption. Assume that Adam: a. Likes to eat up to 2 apples a day and cannot bear to eat 3 apples a day. b. Is impatient. He will be delighted to increase his consumption at day t from 0 to 1 or from 1 to 2 apples at the expense of an apple he is
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Unformatted text preview: promised a day later. c. At any period in which he does not have an apple, he prefers to get one apple immediately in exchange for two apples tomorrow. d. Cares only about his consumption in the Frst 120 years of his life. Show that if (poor) Adam is offered a stream of 2 apples starting in period 19 for the rest of his life (assuming he does not expect to live more than 120 years), he would be willing to exchange that offer for one apple given right away....
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