Problem 2 (10 points) For this question, suppose that Winnie the Pooh and Eeyore have the...

Transcribed Image Text:

Problem 2 (10 points) For this question, suppose that Winnie the Pooh and Eeyore have the same value function: v(x) = √for gains and v(x) = 2√x for losses. The two are also facing the same choice, 2 between (S) $2 for sure and (G) a gamble with a 50% chance of winning $4 and a 50% chance of winning nothing. a. (2 points) Carefully draw the graph corresponding to the value function above for the case when x ranges from -4 to +4. b. (4 points) Winnie the Pooh codes all outcomes as gains; that is, he takes as his reference point the worst possible outcome under consideration. For Pooh: What is the value of S? What is the value of G? Which would he choose? c. (4 points) Eeyore codes all outcomes as losses; that is, he takes as his reference point the best possible outcome under consideration. For Eeyore: What is the value of S? What is the value of G? Which would he choose? Problem 2 (10 points) For this question, suppose that Winnie the Pooh and Eeyore have the same value function: v(x) = √for gains and v(x) = 2√x for losses. The two are also facing the same choice, 2 between (S) $2 for sure and (G) a gamble with a 50% chance of winning $4 and a 50% chance of winning nothing. a. (2 points) Carefully draw the graph corresponding to the value function above for the case when x ranges from -4 to +4. b. (4 points) Winnie the Pooh codes all outcomes as gains; that is, he takes as his reference point the worst possible outcome under consideration. For Pooh: What is the value of S? What is the value of G? Which would he choose? c. (4 points) Eeyore codes all outcomes as losses; that is, he takes as his reference point the best possible outcome under consideration. For Eeyore: What is the value of S? What is the value of G? Which would he choose?

Answer rating: 100% (QA)

a The graph corresponding to the value function is Value Function Gra... View the full answer