This question asks you to explore in more detail how projection bias influences order and return decisions for a winter coat.

This question asks you to explore in more detail how projection bias inuences order and return decisions for a winter coat. Suppose that, if you buy it, you will use a coat on 10 cold days and 5 warm days. The actual utility of the coat is 25 on a cold day and 8 on a warm daythat is, u(coat,cold} = 25 and 11(coat,warm} = 8. Suppose further that you are an exponential discounter with 6 = 1, but you have simple projection bias with magnitude 0:. Finally, suppose that your utility from money is linear, so that if your perceived intertemporal utility from the coat is U, then your willingness to pay for the coat is just SU. (a) If you did not have projection bias, what would be your willingness to pay for the coat? (b) If you decide whether to order on a cold day, what is your willingness to pay for the coat (as a function of a}? If you decide whether to order on a warm day, what is your willingness to pay for the coat (as a function of a)? (c) Suppose that when you receive the coat you immediately decide whether to keep it or return it (and you stick with that decision). If you receive the coat on a cold day, what is your willingness to pay to keep the coat (as a function of 01)? If you receive the coat on a warm day, what is your willingness to pay to keep the coat (as a function of a)? (d) In this simple model, we would observe you order and then return the coat only if your willingness to pay on the order date is larger than the market price (so you order it) while your willingness to pay on the return date is smaller than the market price (so you then return it}. Given your answers to parts (b) and (c), under what conditions might we observe you order and then return the cost