Exam 17: Behavioral Economics

Jan is a hyperbolic discounter.She puts weight 1 on utility earned in the current period but only weight .5 on utility earned in future periods.In period 1 she comes up with a plan,which involves taking some action that leads to a loss of C utils in period 2 but provides a benefit of B utils in period 3.What values of B and C will lead her to behave inconsistently and not follow through on her plans?

An individual has preferences consistent with prospect theory.The person takes their current wealth of $10,000 (plus any certain additions)as their reference point.Gains above this reference point are worth +1 util.Losses below this reference point are worth -2 utils.The person is faced with two choice problems.The first involves a choice between (A)no gamble and (B)a gamble with an equal chance of winning $1,800 and losing $1,000.The second choice problem,the person first has $1,000 taken away (resulting in the adjustment of the reference point).The choice is then between (C)being given back $1,000 for sure and (D)an equal chance of winning $2,800 or nothing.What choices would the person make?

Return to the case of Jan,the hyperbolic discounter from the previous question.Suppose she can sign a contract that requires her to give up money equivalent to a loss of X utils if she does not undertake the action.Assume she does not behave consistent with her plans without this contract.How high would the contractual value of X have to be to prevent her inconsistency?

People are sometimes seen to give up money to move to a fairer allocation.What experiment could be used to determine if this is because people truly care about fairness or because people want to avoid the consequences of others' spite?