Subjects have simple projection bias of degree α and βδ time preferences when

# Subjects have simple projection bias of degree α and

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of utility in the period in which it is received or spent. Subjects have simple projection bias of degree α , and βδ time preferences when choosing across periods. 1. Solve for WTP A , WTP B , WTP C , and WTP D – subjects’ willingness to pay at times A–D for a dose of BUP at time E. 2. Order the four WTPs, and explain the intuition. If some cannot be ranked, explain why. 3. Explain how to test the hypothesis “ H 0 : subjects have correct beliefs” against “ H a : subjects exhibit projection bias. 4. Suppose an economist wanted to identify the structural model parameters using the data. (a) Explain how to calculate u sat from the data, or why it is impossible. (b) Explain how to calculate u dep from the data, or why it is impossible. (c) Explain how to calculate β from the data, or why it is impossible. (d) Explain how to calculate βδ from the data, or why it is impossible. (e) Explain how to calculate α from the data, or why it is impossible. 5. Suppose the experimental design were augmented by eliciting the smallest amount of money sub- jects would immediately accept to refrain from the initial hit of BUP in period 2 (i.e. the one between C and D). (a) Which of the parameters from question 4 could now be identified, and when (A, B, C, or D?) should this new elicitation be asked? (b) Which parameters from question 4 can still not be identified? Explain how to augment the experiment so that they could be. 1

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