Answer Happy

Problem 2 Suppose Tony is deciding on buying an expensive road bike. There are three periods: Period 0: Tony decides to buy or not to buy the bike. The cost of the bike is equal to P utility units. ( uo (buy): = -P and uo (notbuy) = 0) Period 1: If Tony has bought the bike, then he has to decide if he is going out for a ride. If he goes for a ride, then his effort generates a utility cost of E units of utility. (u₁ (ride) = − E and u₁ (noride) = 0) Period 2: If Tony has bought a bike and has ridden on it, then a health benefit equivalent to B utility units accrues. (u₂ (ride) = B) = 1) but has a severe f) Suppose Tony is naive and absolutely patient in the long term (6 present bias (B = =). Assume again P = 2, E = 4 and B = 8. Is he in period O expecting to ride in period 1 if he buys the bike? Is he actually going to ride if he has bought a bike and arrives at period 1? Is he going to buy the bike?