Naïve people are preference bias with B<1. But naive people believe that they are Time-consistent, believing that their future preferences selves will be identical in the future but as the day comes their preferences change.
Sophisticated people are time-consistent and know exactly what their future preferences will be. They correctly predict future preferences selves.
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Does someone know what have we to prepared for the first tutorial? Do we have to read Gravelle and Rees? Or we have to answer the questions about the Expected Utility Theory (in the course manual)? Because there is no explications about the tutorial 1 in the course manual.
The independence axiom states that for p E [0,1] and as X,Y, Z as outcomes , If X >= Y then pX+(1-p)Z>=pY+(1-p)Z
So we can remodel s1 as 0,11(1$)+0.89(1$) and r1 as 0.11[10/11(5$)+1/11(0$)]+0.89(1$)
and s2 stays the same but r2 can also be rewritten into 0.11[10/11(5$)+1/11(0$)]+0.89(1$)
from here we can see that if someone prefers s to r they must be doing so since they prefer 1m to [10/11(5$)+1/11(0$), however people switch which violates our independence axiom. Hope it helps
so unless it was kinda messed up in the explanation since it was technical what it basically saying is that if you choose x over y in the first case then you must choose the same, even if the lotteries are now compounded, so an additional Z or in this case the similarity of probabilities should not change you choice over lotteries
Anonymous Compact Disc
8 months ago
Is it me or did the whole course change in the past years and can't we find any solutions to the problems and relevant summaries on SD?