Reference no: EM133256200

Assignment:

Question

Buy-now pay-later works as follows: a person purchases an item with an initial payment of one-quarter of the purchase price. They get access to the purchased item immediately. They then pay three equal instalments each fortnight until they have paid for the purchase in full. If they faiI to make a payment on time. they are required to pay a fee of $10 and are barred from using the buy-now pay-later facility in the future. Vernon used a buy-now pay-later provider to purchase a new jacket for $200. He paid $50 on the day of the purchase and is now required to pay the next $50 instalment in two weeks. That is, Vernon's schedule of costs and bene?ts is:

. Purchase clate: Gains jacket and pays $50

. In two weeks: Pays $50

. In four weeks: Pays $50

. In six weeks: Pays $50

At that time of the purchase Vernon intends to pay for the jacket as required by the buy-now pay-later provider in two, four and six weeks.

Two weeks after the purchase when his payment became clue Vernon changed his mind and did not make the payment. He purchased a carton of beer for a party that night with the money instead. Vernon's options and the cost and bene?ts of those options had not changed since the purchase date.

Is Vernon an exponential discounter or present-biased? Why? Explain why Vernon changed his mind.