1 Viva Las Vegas (19 points) You have enough money saved up to take a trip to La

Question

1 Viva Las Vegas (19 points) You have enough money saved up to take a trip to Las Vegas. You can only go once,bil definitely go. You are considering visiig in March, Apri, or May. The worst time to visit is in March since is likely to rain and the best time is in April, before it gets too hot and crowded in May. The cost of going to Las Vegas consists not only of losing money gambling, but the potential damage to your GPA from neglecting your coursework. The cost is lowest in May, after the semester has ended, and highest in April, when you are finishing final papers and preparing for exams 1, we can model this situation as a case of inmediate rewards in the "Doing it once" model with T-3, s- and v = (5, 12, 10) c = (3,6,2) a. (4 points) Determine the perception perfect strategy for the case in which you are time consistent b. (6 points) Determine the perception perfect strategy for the case in which you are a naif. e. (6 points) Determine the perception perfect strategy for the case in which you are a sophisticate d. (3 points) Does the naif or sophisticate go to Las Vegas first? Explain the reason for this result by explaining their different thought processes- do not simply cite the math from the previous parts.

Explanation / Answer

Here, the rewards are salient. And delta = 1 means we assume that there is no "long-term" discounting. Costs are not salient and so we can take them to be accounted in period T+1.

For TCs, strategy s = (N, N, Y) so TCs visit Vegas in May since it yields the highest reward.

For Naif, strategy s = (N,Y,Y) so naives visit Vegas in April since they face the self control problem in April and they give in to it.

For Sophisticates, strategy s = (Y, Y, Y) so sophisticates visit Vegas in March itself.

The March sophisticate would choose to go in March because he correctly predicts that he would give in to selfcontrol problem in April, and see visit in April itself rather than doing in May.

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