You live for 2 periods. In each period, you receive utility
from consuming ice-cream: U(C) = C11, where C is the number of ice-cream cones you eat, and is the risk aversion parameter.
In period 1, ice-cream costs $1 per cone, and in period 2, the price goes up to $2 per cone. You do
not have a job, but you have a $100 bill.
1. How much should you spend on C1 and C2 (as a function of ) to maximize your ?lifetime?
utility V = U(C1) + U(C2)? Hint: Your constraint here is C1 + 2C2 = 100.
2. What is C1? and C2? if = 0.5? Will you split the $100 bill more or less equally between the 2 periods if increases to 2?
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