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An Intertemporal Model with Stochastic, Time-Inconsistent Preferences on Nicole Cherrys Love Life

Scott Lee February 10, 2012

Introduction

Nicole Cherry is a stupid bitch who cannot get her shit together when it comes to her love life. Upon discussing why, the authors realized that her apparently irrational behavior could plausibly be modeled by an intertemporal model with stochastic, time-inconsistent preferences. In particular, Nicole Cherry has struggled for some time to get over an individual of interest named Jonathan Feng. In this paper, we hope to show that with the adequate structuring, a agent can be shown to behave rationally despite continuously fucking herself over in an abusive relationship.

Setup of the Model


xt = hours spent with Jonathan Feng, where t = current period, t N Mt ,t are real parameters such that M, > 0 and are random variables. describes the randomness of Nicole Cherrys perception of Jonathan Feng, while describes the randomness of Jonathan Fengs behavior. is distributed normally, i.e. N (0, 1). also has = 0 and = 1, but is heavily skewed left. Rt1 = t min {0, Ui (xi )}i=1 + Mt max {0, Ui (xi )}i=1 . Rt1 is a memory term. In particular, Rt1 recalls the best and worst of the past t 1 experiences with Jonathan Feng. rt1 is the normalized z-score of Rt1 , i.e. rt1 = deviation of Rt1 , respectively. Ut (xt ) is the utility Nicole Cherry derives from spending time with Jonanthan Feng at time t. Rt1 , where , are the mean and standard / t 1
t1 t1

Let us start by dening some variables.

Then we may dene the utility function, Ut (xt ), by Ut (xt ) = (rt1 + ) xt x2 t

Solving the Model


max Ut (xt ) = (rt1 + ) xt x2 t
xt

We have the following optimization problem:

Taking rst order conditions, we have [xt ] : rt1 + 2xt = 0 Rearranging for xt , we have x = t rt1 + 2

Interpretation of the Model

We see that at time t, x = rt1 + . This shows that x is increasing in rt1 , and decreasing in . This t t 2 matches the intuition that Nicole Cherry will tend to spend more time with Jonathan Feng if she has more positive recollections of Jonathan or has a particularly good impression of him that day, e.g. she is ovulating. It also matches the intuition that as Jonathan Feng acts increasingly like an asshat, Nicole Cherry tends to spend less time with him. Note also that rt1 is a recursive memory term which remembers the best of worst of Nicole Cherrys experiences. As a result, if, as experience has shown us, Jonathan Feng exhibits increasingly higher values of , which I will aptly call the dick factor, then due to lower values of past Ut (xt ), rt1 will become very low. As rt1 remains at a very low value, Nicole Cherry becomes permanently disinclined to spend time with Jonathan Feng, as we have seen.