Sue is an exponential discounter. Her discount function which illustrates her preference for money at various points in time is characterized as follows: (t) = 1/(1.07)^t for t = 0,1,2, ... Bob on the other hand is a hyperbolic discounter. His discount function is: (t) = 1 for t = 0 = .8/(1.03)^t-1 for t = 1,2, ...
a. What would Sue/Bob rather have: $1 today or $1.10 next year? Explain.
b. What would Sue/Bob rather have: $1 next year or $1.10 the year after that? Explain.