Consider the following payoffs

Consider the following payoffs

 

  • x1: $10 on October 1st
  • x2: $15 on November 1st

 

 

Also consider the following decision-makers, with U(y) = y, initial wealth = 0, and δ capturing a monthly discount factor

 

  • Leo: discounted utility maximizer with δ = 0.5
  • Don: discounted utility maximizer with δ = 0.75
  • Ralph: beta-delta utility maximizer with δ = 0.5 and β = 0.5
  • Mike: beta-delta utility maximizer with δ = 0.75 and β = 0.5

 

 

 

1.1. Fill in the following table based on the discounted utilities or beta-delta utilities generated by the above parameters. Here “Utility of x1 on Aug 1″ corresponds to the utility of receiving $10 on October 1st as assessed by the decision maker on August 1st.  [12 points]

 

  Leo Don Ralph Mike
Utility of x1 on Aug 1        
Utility of x2 on Aug 1        
Utility of x1 on Sept 1        
Utility of x2 on Sept 1        
Utility of x1 on Oct 1        
Utility of x2 on Oct 1        
 
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