4. Suppose you had to eat a cake over 3 days. The share of cake consumed in period t is Ct, so that Σ1Ct ≤ 1. Instantaneous utility is derived as u(ct) = log(Ct). a) = Find the optimal consumption path for an exponential discounter with a daily discount rate of p 0.1. b) Find the consumption path for a naïve hyperbolic discounter with a discount factor of 1 in the current day and B (1) for utility delayed by 7 days, where ß = 0.7 and p = 0.1. c) Discuss what a sophisticated hyperbolic discounter should do on the first day.

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Chapter1: Making Economics Decisions
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4. Suppose you had to eat a cake over 3 days. The share of cake consumed in period t is ct, so that
53
E=1 Ct < 1. Instantaneous utility is derived as u(ct) = log(ct).
a) Find the optimal consumption path for an exponential discounter with a daily discount rate of p =
0.1.
b) Find the consumption path for a naïve hyperbolic discounter with a discount factor of 1 in the
current day and B (,) for utility delayed by t days, where ß = 0.7 and p = 0.1.
1+p.
Discuss what a sophisticated hyperbolic discounter should do on the first day.
Transcribed Image Text:4. Suppose you had to eat a cake over 3 days. The share of cake consumed in period t is ct, so that 53 E=1 Ct < 1. Instantaneous utility is derived as u(ct) = log(ct). a) Find the optimal consumption path for an exponential discounter with a daily discount rate of p = 0.1. b) Find the consumption path for a naïve hyperbolic discounter with a discount factor of 1 in the current day and B (,) for utility delayed by t days, where ß = 0.7 and p = 0.1. 1+p. Discuss what a sophisticated hyperbolic discounter should do on the first day.
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