Suppose you have an option that gives you a lifetime income of $75,000 or a graduated income that begins at $30,000 and ends at $120,000 with the exact same present value. Which of the following would be true?
A)Based on purely rational choice assumptions you should prefer the first choice.
B)The first choice is preferred because no one likes low income years.
C)The second choice is generally preferred because the steadily improving income brings some pleasure.
D)There is no reason to believe either choice is preferred so you would be indifferent between the two options.

Question

Quizplus · Accepted Answer

The second choice, which offers a graduated income that increases over time, is generally preferred by individuals due to the pleasure associated with steadily increasing income. This is supported by research in the field of behavioral economics, which suggests that individuals are not purely rational in their decision-making and are often motivated by subjective factors such as perceived pleasure. Thus, the steadily improving income offered by the second choice would likely be more appealing to most individuals, even if the present value is the same as the first choice.

Suppose You Have an Option That Gives You a Lifetime