Question: Simply assume that the probability-weighting function is (p) = p for any p [0, 1]. Suppcxse Ann has the following value function Ann's car broke

Simply assume that the probability-weighting function is (p) = p for any p [0, 1].

Suppcxse Ann has the following value function Ann's car broke down so she just spent $100 at the auto repair shop. Afterwards, she picked up a SIO bill on the sidewalk on her way home. 1. If Ann integrates the loss and the gain, what is her total utility change? 2. If Ann segregates the loss and the gain, what is her total utility change? 3. Fyom your answers to Questions 3-1 and 3-2, which way of thinking about this makes Ann feels better? 4. Try to reach the same conclusion using the graphical analysis we conducted in class for bundling. Now suppose Rob has the same value function as Ann. Rob won a 810,000 lottery but had to pay a $900 tax on his winnings. 5. If Rob integrates the loss and the gain, what is his total utility change? 6. If Rob segregates the loss and the gain, what is his total utility change? 7. According to your calculation, which way of thinking about this (integration or segre- gation) makes Rob better?

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