5. This problem studies an experimental subject with reference-dependent preferences over mugs and wealth. Their consumption...

 

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5. This problem studies an experimental subject with reference-dependent preferences over mugs and wealth. Their consumption of mugs is denoted m and his wealth is denoted w. Let the reference points (endowments) be denoted m* and w*. Their value function is: V(m-m*, w-w*) = 3v(m-m*)+v(ww*), where v(x) = Ja if x ≥ 0 2x if x < 0. Suppose the subject enters the experiment with zero mugs and no money. (a) Suppose the subject is in the 'chooser' condition of the experiment. What are their m* and w*? Calculate the amount of money that makes them indifferent to getting one mug. Call it pd. (b) Suppose the subject is in the 'seller' condition of the experiment (that is they just got a mug from the experimenter, which becomes part of their reference point). What are their m* and w*? Calculate their selling price. Call it på. 5. This problem studies an experimental subject with reference-dependent preferences over mugs and wealth. Their consumption of mugs is denoted m and his wealth is denoted w. Let the reference points (endowments) be denoted m* and w*. Their value function is: V(m-m*, w-w*) = 3v(m-m*)+v(ww*), where v(x) = Ja if x ≥ 0 2x if x < 0. Suppose the subject enters the experiment with zero mugs and no money. (a) Suppose the subject is in the 'chooser' condition of the experiment. What are their m* and w*? Calculate the amount of money that makes them indifferent to getting one mug. Call it pd. (b) Suppose the subject is in the 'seller' condition of the experiment (that is they just got a mug from the experimenter, which becomes part of their reference point). What are their m* and w*? Calculate their selling price. Call it på.

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a In the chooser condition the subject enters the experiment with zero mugs and no money To determin... View the full answer