5. Bob has utility over hammers (h) and dollars (m).U= v(3ch - 3rh) + v(cd - rd)where v(x)= x for x ? 0 and v(x)= 2x for x ? 0.(a) Assume that Bob's reference point is 0 hammers and 0 dollars. For each of thefollowing choices, show Bob's expected utility for each option, and state whichchoice he would make.i. Would Bob choose Option A: 50% chance to win 16 hammers and 50%chance to win 4 hammers or Option B: definitely winning 8 hammers?ii. Would Bob choose Option A: 50% chance to lose 16 hammers and 50%chance to lose 4 hammers or Option B: definitely losing 12 hammers?ili. Would Bob choose Option A: 50% chance to gain 8 hammers and 50% chanceto lose 4 hammers or Option B: gain 1 hammer.(b) Again, assume that Bob's reference point is 0 hammers and O dollars. Bob isoffered the opportunity to buy a hammer for $2.? What would be Bob's utility if he does buy the hammer?What would be Bob's utility if he does not buy the hammer?? Would Bob prefer to buy the hammer or not?

5. Bob has utility over hammers (h) and dollars (m). U = v(3ch - 3Th) + v(ca - Ta) where v(x) = I for x 2 0 and v(x) = 2x for x 5 0. (a) Assume that Bob's reference point is 0 hammers and 0 dollars. For each of the following choices, show Bob's expected utility for each option, and state which choice he would make. i. Would Bob choose Option A: 50% chance to win 16 hammers and 50% chance to win 4 hammers or Option B: definitely winning 8 hammers? ii. Would Bob choose Option A: 50% chance to lose 16 hammers and 50% chance to lose 4 hammers or Option B: definitely losing 12 hammers? iii. Would Bob choose Option A: 50% chance to gain 8 hammers and 50% chance to lose 4 hammers or Option B: gain 1 hammer. (b) Again, assume that Bob's reference point is 0 hammers an dollars. Bob is offered the opportunity to buy a hammer for $2. . What would be Bob's utility if he does buy the hammer? . What would be Bob's utility if he does not buy the hammer? . Would Bob prefer to buy the hammer or not? (c) Now assume that Bob recently received a hammer as a gift, and he has updated his reference point to be 1 hammer and 0 dollars. Bob is offered the opportunity to sell his hammer for $2. . What would be Bob's utility if he does sell the hammer? . What would be Bob's utility if he does not sell the hammer? . Would Bob prefer to sell the hammer or not? (d) Is Bob's buying price the same as his selling price? Describe one study discussed in class that demonstrates a similar concept