Suppose that Amy has the following value function: v(w) = w.3/4 when w > 0 =...

  

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Suppose that Amy has the following value function: v(w) = w.3/4 when w > 0 = -2(-w) 3/4 when w< 0 where x is the realized outcome relative to the reference point. Assume that the my's reference point is the status quo and that she is offered the prospect P1: P1(0.6, $100,-$100) a) Will she participate in the prospect? b) Suppose that Amy participates in the prospect and loses $100. She feels bad about it and perceives it as a loss. Her reference point is unchanged at the original status quo. She is offered the prospect again, does she accept this second time? c) Amy is offered a new job for which she gets a $10,000 sign-on bonus. She has in consequence a new wealth level and changes her reference point. Would she accept now the prospect 1? Suppose that Amy has the following value function: v(w) = w.3/4 when w > 0 = -2(-w) 3/4 when w< 0 where x is the realized outcome relative to the reference point. Assume that the my's reference point is the status quo and that she is offered the prospect P1: P1(0.6, $100,-$100) a) Will she participate in the prospect? b) Suppose that Amy participates in the prospect and loses $100. She feels bad about it and perceives it as a loss. Her reference point is unchanged at the original status quo. She is offered the prospect again, does she accept this second time? c) Amy is offered a new job for which she gets a $10,000 sign-on bonus. She has in consequence a new wealth level and changes her reference point. Would she accept now the prospect 1?

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a To determine if Amy will participate in prospect P1 we calculate her expected value of t... View the full answer