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Exponential discounter

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Reference no: EM1345106

Sue is an exponential discounter. Her discount function which illustrates her preference for money at various points in time is characterized as follows: (t) = 1/(1.07)^t for t = 0,1,2, ... Bob on the other hand is a hyperbolic discounter. His discount function is: (t) = 1 for t = 0 = .8/(1.03)^t-1 for t = 1,2, ...

a. What would Sue/Bob rather have: $1 today or $1.10 next year? Explain.
b. What would Sue/Bob rather have: $1 next year or $1.10 the year after that? Explain.

 

Reference no: EM1345106

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