Question

Alicia’s philosophy of life is summed up by the proverb “A penny saved is a penny earned.” She plans and saves for the future. In contrast, Mike’s view is “Life is uncertain; eat dessert first.” Mike wants as much as possible now.

(a) Who has the highest rate of time preference?

(b) Do people like Alicia benefit from the presence
of people like Mike?

(c) Do people like Mike benefit from the presence
of people like Alicia? Explain

(d) Which of these philosophies do you identify the
most with? If neither note what is your fiscal
mantra? Explain your answer.

Answer 1

(a) Who has the highest rate of time preference? Answer: Mike has the highest time preference because he is considering present time to be more important the uncertain fututre time and preferring present consumption more.

(b) Do people like Alicia benefit from the presence of people like Mike? Answer: Yeah not vey much but little bit, not in the sense of finance but from the point of view of enjoyment. Saving for future is always recommended but enjoying a little bit of what you have now is also important. Afterall we are here to live not to worry.

(c) Do people like Mike benefit from the presence of people like Alicia? Explain Answer : Yes, people like Mike benefit a lot from the presence of people like Alicia as they will be influenced to execute sound financial planning, cut today's consumption and save for the future.

(d) Which of these philosophies do you identify the most with? If neither note what is your fiscal mantra? Explain your answer. Answer : I will follow the policy of Alicia 90% of the time and the policy of Mike 10% of the time.