Scenario: Susan discounts delayed utility with a weight of $ \frac{1}{2} $ , and Jim discounts delayed utility with a weight of 1/4. Both individuals win gift vouchers, which can be used after a year. Both Susan and Jim estimate the utility of the gift vouchers at 90 utils.
-Refer to the scenario above.What is the present value of the gift voucher to Susan?

Question

Quizplus · Accepted Answer

To calculate the present value of the gift voucher for Susan, we need to use the following formula:

Present value = (discounted utility weight * estimated utility) / (1 + discount rate)

The discount rate is not given, so we'll assume a reasonable rate of 10%.

For Susan: 
Present value = (1/2 * 90) / (1 + 0.10) 
Present value = 45

Therefore, the present value of the gift voucher for Susan is 45 utils.

As for the best choice, it depends on the context of the decision. If the goal is to maximize overall utility or satisfaction, then a weighted average approach like Susan and Jim's may be appropriate. However, if there are other factors to consider, such as opportunity costs or risk tolerance, then a different approach may be more appropriate. Without more information, we cannot determine the best choice.

Scenario: Susan Discounts Delayed Utility with a Weight Of 12 \frac{1}{2} 21​

Scenario: Susan Discounts Delayed Utility with a Weight Of $\frac{1}{2}$