You have just graduated from college and have two job offers doing identical work. Firm A offers you $40,000 per year and informs you that your coworkers will make the same. Firm B offers you $38,000 per year, and informs you that your coworkers will make $35,000.

a. Which job offer does economic theory predict you will take?

b. When experimental subjects were asked which job would make them happier, well over half indicated that they preferred Firm B. Can you think of a systematic bias that might lead people to prefer a job that pays less for identical work? Explain.