Question 1

Why is a naif unwilling to pay for a commitment mechanism?
A) A naïf does not like to commit.
B) A naïf is too risk-seeking to commit.
C) A naif does not foresee the need to commit.
D) A naif's beliefs are too overconfident to foresee the need to commit.

Accepted Answer

A naif does not foresee the need to commit because they are unaware of their future self-control problems or biases.

Question 2

Scenarios in which rewards are experienced in the same time period as the action to acquire the reward are called,
A) Current rewards
B) Today's rewards
C) Immediate rewards
D) Delayed rewards.

Accepted Answer

Immediate rewards refer to the scenario where the rewards are experienced in the same time period as the action to acquire the reward, emphasizing the immediacy of the gratification.

Question 3

Scenarios in which costs are experienced later than the action to incur the cost are called,
A) Immediate costs.
B) Today's costs
C) Delayed costs.
D) Current costs

Accepted Answer

The answer of Scenarios in which costs are experienced later...

Question 4

A partially naïf individual believes $\beta \neq \delta$, but $\beta=\hat{\beta}$. If $\beta=\frac{1}{2}$, which of the following could be possible values of $\hat{\beta}$ ?
A) $\frac{3}{4}$
B) $\frac{2}{5}$
C) $\frac{1}{4}$
D) $\frac{3}{8}$

Accepted Answer

The answer of A partially naïf individual believes \(\beta \neq...

Question 5

Consider the example given on pages 3-12 and 3-13. Suppose $k_{v}=k_{c}=0$, that is both costs and rewards are immediate. Let the remaining parameters be unchanged, so that $v_{t}=$ $\{8,20,0\}, c_{t}=\{0,9,1\}, \beta=\frac{1}{2}, \delta=1$. Suppose the decision-maker is partially naïve and believes $\hat{\beta}>\beta$. For which value of $\hat{\beta}$ does the decision-maker's choice violate the dominance property?
A) $\hat{\beta}=\frac{1}{2}$
B) $\hat{\beta}=\frac{8}{11}$
C) $\hat{\beta}=\frac{4}{11}$
D) $\hat{\beta}=1$.

Accepted Answer

Given that $k_v = k_c = 0$, the costs and rewards are immediate, and with the parameters provided, the dominance property is violated when the decision-maker overestimates the discount factor $\beta$, thinking it is higher than it actually is. The correct choice of $\hat{\beta}$ that leads to a violation of the dominance property, given the context and parameters, is $\hat{\beta} = \frac{8}{11}$. This is because, with this overestimation, the decision-maker would incorrectly assess the present value of future rewards and costs, leading to a choice that does not maximize their actual discounted utility.

Question 6

Joy needs to clean the house before her parents come on Sunday. Today is Friday. This means Joy can clean either Friday, Saturday or Sunday. The reward for cleaning the house is that Joy gets to enjoy a clean home, but the cost is that she will have to give up planned activities with her friends. Let $v_{t}=\{10,0,0\}$ be the reward for cleaning the house on Friday, Saturday, Sunday, respectively. Let $c_{t}=\{0,2,1\}$ be the cost of cleaning the house on Friday, Saturday, Sunday, respectively. The Dominance Property requires Joy to clean the house on which day?

Accepted Answer

The answer of Joy needs to clean the house before...

Question 7

Joy needs to clean the house before her parents come on Sunday. Today is Friday. This means Joy can clean either Friday, Saturday or Sunday. The reward for cleaning the house is that Joy gets to enjoy a clean home, but the cost is that she will have to give up planned activities with her friends. Let $v_{t}=\{10,0,0\}$ be the reward for cleaning the house on Friday, Saturday, Sunday, respectively. Let $c_{t}=\{0,2,1\}$ be the cost of cleaning the house on Friday, Saturday, Sunday, respectively. Suppose her parents call and inform Joy that they are coming home on Saturday as opposed to Sunday. Does this change Joy's optimal action if she is time consistent and why?

Accepted Answer

The answer of Joy needs to clean the house before...

Question 8

Consider the example given on pages 3-12 and 3-13. Suppose $k_{v}=k_{c}=0$, that is both costs and rewards are immediate. Let the remaining parameters be unchanged, so that $v_{t}=$ $\{8,20,0\}, c_{t}=\{0,9,1\}, \beta=\frac{1}{2}, \delta=1$. In which time period does the naïf act?

Accepted Answer

The answer of Consider the example given on pages 3-12...

Question 9

Consider the example given on pages 3-12 and 3-13. Suppose $k_{v}=k_{c}=1$, that is both costs and rewards are immediate. Let the remaining parameters be unchanged, so that $v_{t}=$ $\{8,20,0\}, c_{t}=\{0,9,1\}, \beta=\frac{1}{2}, \delta=1$. In which time period does the sophisticate act?

Accepted Answer

The answer of Consider the example given on pages 3-12...

Quiz 13: Committing and Uncommitting

Why is a naif unwilling to pay for a commitment mechanism?

Scenarios in which rewards are experienced in the same time period as the action to acquire the reward are called,

Scenarios in which costs are experienced later than the action to incur the cost are called,

A partially naïf individual believes $\beta \neq \delta$ , but $\beta=\hat{\beta}$ . If $\beta=\frac{1}{2}$ , which of the following could be possible values of $\hat{\beta}$ ?

Consider the example given on pages 3-12 and 3-13. Suppose $k_{v}=k_{c}=0$ , that is both costs and rewards are immediate. Let the remaining parameters be unchanged, so that $v_{t}=$ $\{8,20,0\}, c_{t}=\{0,9,1\}, \beta=\frac{1}{2}, \delta=1$ . In which time period does the naïf act?

Consider the example given on pages 3-12 and 3-13. Suppose $k_{v}=k_{c}=1$ , that is both costs and rewards are immediate. Let the remaining parameters be unchanged, so that $v_{t}=$ $\{8,20,0\}, c_{t}=\{0,9,1\}, \beta=\frac{1}{2}, \delta=1$ . In which time period does the sophisticate act?

Quiz 13: Committing and Uncommitting

Why is a naif unwilling to pay for a commitment mechanism?

Scenarios in which rewards are experienced in the same time period as the action to acquire the reward are called,

Scenarios in which costs are experienced later than the action to incur the cost are called,

A partially naïf individual believes β≠δ\beta \neq \deltaβ=δ , but β=β^\beta=\hat{\beta}β=β^​ . If β=12\beta=\frac{1}{2}β=21​ , which of the following could be possible values of β^\hat{\beta}β^​ ?

A partially naïf individual believes $\beta \neq \delta$ , but $\beta=\hat{\beta}$ . If $\beta=\frac{1}{2}$ , which of the following could be possible values of $\hat{\beta}$ ?