Evaluating a Modeling Assumption
An economist is building a model to predict a country's long-term savings rate over the next 50 years. They decide to use a standard economic model which assumes that individuals' level of impatience is constant over time. Critically evaluate the appropriateness of this assumption for this specific modeling purpose. Justify your position by explaining one major strength and one major weakness of using this assumption in this context.
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CORE Econ
Economics
Social Science
Empirical Science
Science
Economy
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
Evaluation in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
An individual is making choices about when to receive a prize. They find that they are equally happy with receiving $100 today or receiving $110 one year from now. If this individual's level of impatience is assumed to be constant over time, which of the following statements must also be true?
A student decides on Sunday that they are indifferent between studying for one hour on Monday or studying for one hour and fifteen minutes on Tuesday. According to the economic assumption that an individual's level of impatience is constant over time, it logically follows that when Monday arrives, the student will still be indifferent between studying for one hour immediately (on Monday) or studying for one hour and fifteen minutes on Tuesday.
Predicting Future Preferences
The Role of Constant Impatience in Decision Models
Consistency in Future Financial Decisions
An economic model is built on the assumption that an individual's level of impatience is constant over time. This means their preference for having something sooner rather than later does not change based on how far in the future the choice is. Which of the following scenarios describes a behavior that is INCONSISTENT with this assumption?
An economic model is built on the assumption that an individual's level of impatience is constant over time. This means their preference for having something sooner rather than later does not change based on how far in the future the choice is. Match each of the following behaviors with the category that best describes its relationship to this assumption.
Analyzing Inconsistent Time Preferences
Evaluating a Modeling Assumption
An economic model assumes an individual's level of impatience is constant over time. This means that if an individual prefers a smaller, immediate reward over a larger, delayed reward in one instance, they will consistently choose the immediate reward in all future decisions involving a time trade-off.
The Special Psychological Status of the Present
The Problem of Present Bias (Hyperbolic Discounting) and Time-Inconsistent Behavior