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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

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

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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?
Transcribed Image Text: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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