Problem Set due Nov 24, 2020 10:30 AEDT

Problem PS11.1.1a

1/2 points (graded)

Adwoa's friend tells her that2001: A Space Odysseyis good. Adwoa is trying to decide between reading the book and watching the movie.

Assume that the movie yields an immediate utility of 1 in the single period (single day) during which Adwoa watches it, and a utility of 0 thereafter.

Assume that the book yields a utility of 0.1 for each of 100 periods during which she reads it, and a utility of 0 thereafter.

Adwoa's utility function at timet

isU

t

=u(c

t

)+

i=t+1

i

u(c

i

)

, representing the fact that she discounts the utility of future consumption.

First, suppose that=0.5

and=0.92

.

What is Adwoa's present value of seeing the movie today?

correct

1

What is Adwoa's present value of reading the book, starting today?

incorrect