8. Ann can finish a project either this week or next week. The delayed rewardsare 10 in either case. (The project can be done only once or not at all).Next week is busy and the cost of finishing the project are lower this week. Theimmediate costs are 4 this week and 6 next week.Ann has a quasi-hyperbolic utility with & = 1 and B < 1. Imagine that Anndoes not finish the project this week. Then she should finish it next week(A) if ß > 0.6; (B) if ß > 0.4; (C) only if ß = 1; (D) for any ß.9. Suppose that B = 0.5 and Ann correctly anticipates her choice next week. Thenshe should finish the project(A) this week; (B) next week; (C) never; (D) not enough information.10. Suppose that ß = 0.5, and Ann can commit to finish the project next week (e.g.by imposing a heavy cost on herself if the project is not finished next week).Then she will(A) do the project this week;(B) commit to do it next week and finish it then;(C) do it next week without commitment3;(D) commit and then not finish it.

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Asked Dec 10, 2019
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#9 and 10

8. Ann can finish a project either this week or next week. The delayed rewards
are 10 in either case. (The project can be done only once or not at all).
Next week is busy and the cost of finishing the project are lower this week. The
immediate costs are 4 this week and 6 next week.
Ann has a quasi-hyperbolic utility with & = 1 and B < 1. Imagine that Ann
does not finish the project this week. Then she should finish it next week
(A) if ß > 0.6; (B) if ß > 0.4; (C) only if ß = 1; (D) for any ß.
9. Suppose that B = 0.5 and Ann correctly anticipates her choice next week. Then
she should finish the project
(A) this week; (B) next week; (C) never; (D) not enough information.
10. Suppose that ß = 0.5, and Ann can commit to finish the project next week (e.g.
by imposing a heavy cost on herself if the project is not finished next week).
Then she will
(A) do the project this week;
(B) commit to do it next week and finish it then;
(C) do it next week without commitment3;
(D) commit and then not finish it.
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8. Ann can finish a project either this week or next week. The delayed rewards are 10 in either case. (The project can be done only once or not at all). Next week is busy and the cost of finishing the project are lower this week. The immediate costs are 4 this week and 6 next week. Ann has a quasi-hyperbolic utility with & = 1 and B < 1. Imagine that Ann does not finish the project this week. Then she should finish it next week (A) if ß > 0.6; (B) if ß > 0.4; (C) only if ß = 1; (D) for any ß. 9. Suppose that B = 0.5 and Ann correctly anticipates her choice next week. Then she should finish the project (A) this week; (B) next week; (C) never; (D) not enough information. 10. Suppose that ß = 0.5, and Ann can commit to finish the project next week (e.g. by imposing a heavy cost on herself if the project is not finished next week). Then she will (A) do the project this week; (B) commit to do it next week and finish it then; (C) do it next week without commitment3; (D) commit and then not finish it.

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Expert Answer

Step 1

Quasi Hyperbolic Discounting:

Since Ann correctly anticipates her choice next week, she\\'s a sophisticated quasi-hyperbolic  discounter in the second week. 

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U, = u(c,) + ß × 8 xu(c,1)+ß × 8² xu(c,,2) + ß × 8² xu(c,;3)+... || Given, B=0.5 and 8=1 Remember costs are realised immediately while benefits come later. So costs will be considered in the period of work.

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Step 2

When costs are immediate and rewards are delayed,  Sophisticated discounters know that they will be able to do task in period  2 so they procrastinate. In period 2, when they know that they will not be able to do it in period 3, so they do the task in period 2.

Ut for period 2 is -1 and Ut for not doing the project = 0. As Ut for not doing the project at all is better, Ann should not do the project at all. 

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For this week, her projections are as follows: If Ann finishes her project this week, U, = -4 +(0.5 x l×10) =1 If Ann finishes her project next week, U, =0+(0.5 ×1x-6) +(0.5 ×1 ×10) = 2 %3D As U, is higher for next week, she decides to work next week. For next week, her projections are as follows: If Ann does the project in that week, U, = -6 +0.5 ×1×10 = –1 If Ann doesn't do the project at all, U, = 0

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Step 3

As Ut for not doing the project at all is better, Ann ...

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