I cannot figure out how to start this problem for my behavioral economics course. I would appreciate any help offered on how to start with parts a,b, and/or c 1. Consider the following simple three-period addiction model. The three periods are "youth", "middle age" and "oldage". In each period, the person decides whether or not to consume an addictive good. The preferences in each ofthe three periods can be represented as follows:utility from consuming utility from abstentionwhen unhookedwhen hooked5.-4-11A person is hooked in period t, if and only if she has consumed the addictive good in period t-1. This implies thata single period of restraint gets a person completely unhooked. Suppose that the person is unhooked initially.a) Determine the behavior of a time-consistent person for 6 = 1.b) Consider a naive hyperbolic discounter with 6 = 1, 3 = . When does the person choose to consume theaddictive good?c) Consider a sophisticated hyperbolic discounter with 6 1. 3 = }. When does the person choose to consumethe addictive good?d) Compare the behavior of naive and sophisticated persons? Why can the awareness of self-control problems hurta person?

Answered: cannot figure out how to start this…

cannot figure out how to start this problem for my behavioral economics course. I would appreciate any help offered on how to start with parts a,b, and/or c

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.13P

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Question

I cannot figure out how to start this problem for my behavioral economics course. I would appreciate any help offered on how to start with parts a,b, and/or c

1. Consider the following simple three-period addiction model. The three periods are "youth", "middle age" and "old
age". In each period, the person decides whether or not to consume an addictive good. The preferences in each of
the three periods can be represented as follows:
utility from consuming utility from abstention
when unhooked
when hooked
5.
-4
-11
A person is hooked in period t, if and only if she has consumed the addictive good in period t-1. This implies that
a single period of restraint gets a person completely unhooked. Suppose that the person is unhooked initially.
a) Determine the behavior of a time-consistent person for 6 = 1.
b) Consider a naive hyperbolic discounter with 6 = 1, 3 = . When does the person choose to consume the
addictive good?
c) Consider a sophisticated hyperbolic discounter with 6 1. 3 = }. When does the person choose to consume
the addictive good?
d) Compare the behavior of naive and sophisticated persons? Why can the awareness of self-control problems hurt
a person?

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