nereahs23

Discuss with your classmates how the material you are reading and learning about regarding mortgages and taxes might help you in your daily life and/or in the field in which you are seeking employment or are currently employed in. If you might be in the market for a home, how might this information help you make an informed decision? You may, but are not required to, use information relating to your own personal mortgages or town taxes. Do not divulge any personal information that would be an invasion of your privacy. There are no individual questions from the text for Discussion this week.

4. Consider a consumption profile that's measured in thousands of dollars per year over aperiod of four years: (20,22,23,25). These consecutive amounts of consumption yield different amounts of utility. What is the current utility of the consumption if the discount rate is 10%? (Round to the nearest 2 decimal places)

5. The winner of a lottery jackpot is offered to take the winning as a lump sum cash payment or in a yearly payment over 29 years(sometimes with a 5% yearly increase each year). Contrary to the advice of most financial advisers to take the annuity option(e.g.when interest rate is high), over 90% of winners take the immediate lump sum option. From a behavioral perspective, explain why most winners prefer to take the cash right away.

6. Each time I ask my students, during lecture, if they (option 1) want a break now or (option 2) they prefer that I keep going with the lecture and we will be finishing the class earlier they choose the 2nd option. Based on the neo classical model (e.g.DUM). Which option should be preferred? Using the behavioral way of thinking, why do you think students always choose option 2?

1.What are the two types of utility a consumer might get from a transaction? Briefly explain each one.|

2.Assume you are a researcher observing a trust game.The trustor (I) has $10 as initial investment. Whatever amount (I) decides to send to trustee(T),will be multiplied by 3. (T) in turn will decide to send whatever amount back to (I). In most studies (I) sends almost half of the $10 while (T) sends back a third of the amount received.

What if the initial investment is $500,000.How does this change the decisions made by both players? What's the likely effects of larger amounts on trust? Which of the two models (neoclassical vs behavioral) can explain this situation better?

3. Neoclassical economists and behavioral economists do not see "sunk cost" eye to eye. Will the sunk cost lead to more consumption? or to less consumption? Explain the difference between the two models.