John likes to run and plans to run a marathon on Sunday. He knows that his...

John likes to run and plans to run a marathon on Sunday. He knows that his friend Nigel will call him and invite him to go for a beer on Saturday night.

John enjoys beer but knows if he takes a beer on Saturday he will not be able to perform so well in the marathon on Sunday.

Suppose John would enjoy a utility of 5 on Saturday if he takes a beer, and 1 if he stays at home.

If John stays at home he will be able to run a personal best on Sunday and obtain utility of 9, however if he takes a beer he will suffer on Sunday and only obtain a utility of 3.

a) Suppose that Nigel calls John on Friday, will John accept or reject the invitation?

b) Now suppose that Nigel instead calls John on Saturday afternoon. Will John still reject the invitation?

Solutions

Expert Solution

A. If Nigel calls John on Friday to invite him to go get a beer on Saturday, John will reject the invitation. This is because his combined utility for Saturday and Sunday if he goes out with Nigel is 8 ( 5 from beer, 3 from marathon on Sunday). However, if he stays at home, he will be able to perform well on his marathon, giving him a combined utility of 10 (1 from staying at home on Saturday, and 9 from marathon on Sunday).

B. If Nigel can calls John on Saturday in the afternoon to invite him to go get a beer at night, John would still reject the offer as his utility levels remain the same as mentioned above.

Rahul Sunny answered 1 year ago

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