Calculate harveys choosing selling and buying prices

Reference no: EM131231773

1. Harvey has reference-dependent preferences over mugs and wealth. His consumption of mugs is denoted m and his wealth is denoted w. Let the reference points (endowments) be denoted m* and ω*. Harvey's utility function is:

(a) Calculate Harvey's choosing, selling, and buying prices (p^t_c, p^t_s, and p^t_b respectively).

(b) Who is more loss averse: the person whose preferences we studied in class or Harvey's? How can you tell this based on their utility functions? How can you tell this based on their trading prices?

(c) Suppose you ran an experiment and the median prices were p_c = 3.5, p_s = 7, and p_b = 1.75. Find a specification of the utility function (similar to the ones above) that matches this data.

(d) Suppose you ran an experiment and the median prices were p_c = 3.5, p_s = 7, and p_b = 3.5. Find a specification of the utility function that matches this data.

2. Henrique and Nageeb are considering their Thanksgiving options. Nageeb has already decided to go to Santa Barbara (but he hasn't made his reservations yet). Henrique has not made any plans yet. They both just learned that Daniel Kahneman is going to be in town during Thanksgiving and they are both invited to dinner with him. They both have reference-dependent utility functions

Here by s we mean whether the person goes on vacation during Thanksgiving, s* is the reference point, k means whether the person gets dinner with Kahneman and k* is the reference point. Note that λ > 0.

(a) What are Nageeb's reference points (s*, k*)? For what values of λ will he choose the dinner?

(b) What are Henrique's reference points (s*, k*)? For what values of λ will he choose the dinner?

Reference no: EM131231773

Questions Cloud

Rule of preponderance of evidence : You are a state judge who must decide if the state governor has obscure justice and must therefore be impeached. The evidence presented to you states that there is a 75% probability that the governor is guilty. What would your ruling be? In impeachme..

How many heads and tails have already occurred : Does the fact that your friends have knowledge about how many heads and tails have already occurred in the game give them any advantage over you in guessing whether a coin will land on heads or tails on the next coin toss? Explain.

Find the work and heat transfer per unit mass of air : Find the work and heat transfer per unit mass of air. Discuss the different cases and how they may be accomplished by insulating the cylinder or by providing heating or cooling.

Global manager at multinational corporation : In this scenario, you are to choose an industry and assume you are a global manager at a multinational corporation and choose if you would rather expand operations to China or India. You may use information from the textbook, videos, or outside sourc..

Calculate harveys choosing selling and buying prices : Calculate Harvey's choosing, selling, and buying prices (ptc, pts, and ptb respectively). Who is more loss averse: the person whose preferences we studied in class or Harvey's?

Describe how the location affects other facets of company : Consider a company that has a facility located in your local area. This could be a big-box store like Walmart, an automobile manufacturer like Kia, a financial services group like Citibank, or any other company of interest. Why do you suppose the com..

Prove that any market price of risk process : Assume generic absence of arbitrage and prove that any market price of risk process λ generating a martingale measure must be of the form.

Do you think the company has made an ethical decision : You are a software developer for a small struggling educational software company. You have been developing a software program that promises to help professionals pass the A+ certification exam. To prove the effectiveness of the program your company h..

Identify three fitness or exercise misconceptions : Identify three (3) fitness or exercise misconceptions that you have come across, either from other people (friends, family, or strangers) or in the media and social media.

User Account

All Pages