Assume Leonard and Sheldon work for the same company, which announces annual pay raises for its em- ployees every January. They are currently making $50K per year and in the past they were getting 10% raise every year. Leonard already shifted his reference point to the anticipated salary of $55K and making plans how to spend his new salary of $55K. Sheldon on the other hand is using his current salary of $50K as his reference point. Both of them use the same loss averse value function which is given as: v(x) = x 2 for gains (x 0) v(x) = 2x for losses (x < 0)

where x = a salary reference point. Assume this year they each received a 5% raise. Calculate the value they place on their new salary.