Question: Consider a world with two periods (time 0) and time 1. The state at time 0 is known, there are two possible states at time

Consider a world with two periods (time 0) and time 1. The state at time 0 is known, there are two possible states at time 1, G and B. The household has (lifetime) expected utility function, U, with instantaneous utility u(c) given by ln(c) in both periods and the household's discount factor is 0.9. It is also known that the probability of the G state is 0.6.

State contingent sequences of consumption are {c(s0),c(G),c(B)}. What is lifetime expected utility for the sequence {1,5,3}?

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