A Decision Maker (DM) is endowed with a mug, which has a reservation value of $1 to DM. DM considers her willingness to accept (WTA) to sell the mug. Consider the reference dependent model of Koszegi and Rabin for the following questions.

a. If DM expects to sell the mug, solve WTA of DM.

b. If DM does not expect to sell, solve WTA of DM.

c. Solve the prediction of classical theory and compare with the solution in part a and part b

d. If the expectation of DM is that the chance of selling the mug is q and the chance of

not selling the mug is 1-q, solve WTA of DM. How would q affect the WTA?