Sue is an exponential discounter. Her discount function which illustrates her preference for money at various points in time is characterized as follows:
∂(t)=1/(1.07)t for t=0,1,2,...
Bob on the other hand is a hyperbolic discounter. His discount function is:
∂(t) = 1 for t=0
= .8/(1.03)t-1 for t=1,2,...
a. What would Sue/Bob rather have: $1 today or $1.10 next year? Explain.
b. What would Sue/Bob rather have: $1 next year or $1.10 the year after that? Explain.