Dave can work on two projects, P (problem set) and E (essay), during the next th

Question

Dave can work on two projects, P (problem set) and E (essay), during the next three days (t=1, 2, 3,). Poor Dave does not enjoy either project. Each task needs two days of work to be completed, a starting period and a finishing period. If Dave has completed a task within first three days, he will receive a reward at day four.
On each day t=1,2,3, Dave can take one of the following three actions: working on task P, working on task E, or not working. Not working costs zero. The immediate costs for working on a project P,E in period t=1,2,3 and delayed rewards, are given in the following table

cost at t=1 cost at t=2 cost at t=3 reward at t=4

P 4 22 45 40

B 8 4 15 25

It is assumed that people do not discount future utilities, i.e. =1. Furthermore, assume tht when Dave is a hyperbolic discounter, his degree of present bias is =1/2.

Q. What is time consistnecy? Calculate the behavior of a time-consistent person.

Explanation / Answer

Time consistency is the financial risk analysis term.
here he tries to complete one task with max profit

he takes 2 days for one task
40-22-4 = 14
25-8-4 = 13

he is better off with problems and keeping 3rd day free

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