a consumer who lives for two periods has the following intertemporal utility: . his current income is certain and equal to 10, but his future income is random and it is characterized by that is distributed as . (a) what are the optimal value of c0 and the expected value of u when c0 has to be chosen without any information on ? (b) if perfect information is received about , what happens to the expected value of u? compute which share of y0 this individual should be willing to give up in order to receive this perfect information. (hint: to avoid lengthy computations in the solution of (a), remember that the choice of the optimal c0 has already been analyzed in exercise 6.1 (d).) eeckhoudt, louis; gollier, christian; schlesinger, harris. economic and financial decisions under risk (p. 139). princeton university press. kindle edition.
