It is October and Sam has won a price of $9000. She has the following two options: • Option A: receiving the entire amount in October; • Option B: receiving the price in three equal installment, that is, receiving $3000 in each of the following months (October, November, December). Sam decides to distribute her price over time by choosing Option B. Assume that Sam has constant marginal utility of money. Prove mathematically that Sam’s preference for Option B cannot be explained by hy- perbolic discounting (the β − δ model). Assume 0 < δ < 1 and 0 < β ≤ 1.

It is October and Sam has won a price of $9000. She has the following two options: • Option A: receiving the entire amount in October; • Option B: receiving the price in three equal installment, that is, receiving $3000 in each of the following months (October, November, December). Sam decides to distribute her price over time by choosing Option B. Assume that Sam has constant marginal utility of money. Prove mathematically that Sam’s preference for Option B cannot be explained by hy- perbolic discounting (the β − δ model). Assume 0 < δ < 1 and 0 < β ≤ 1.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.13P

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