Question: This exercise refers to Example 7.5 on the previous page. Suppose that your value function v() is defined by: By the way, I.ti is the

This exercise refers to Example 7.5 on the previous page. Suppose that your value function v(·) is defined by:

x/2 v(x)= for gains (x0) -2x for losses (x

By the way, I.ti is the absolute value of x: that is, x with the minus sign removed (if there is one).

(a) Draw the curve for values between - ..J and +-l. Confirm that it is concave in the domain of gains and convex in the domain of losses.

(b) Assuming that you have integrated the $1000 into your endowment, what is the value of (A)?

(c) Assuming that you have integrated the $1000 into your endowment, what is the value of (B)?

(d) Assuming that you have integrated the $2000 into your endowment, what is the value of (C)?

(e) Assuming that you have integrated the $2000 into your endowment, what is the value of (D)?

x/2 v(x)= for gains (x0) -2x for losses (x

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