(c) Now suppose that after Mike gets his promo pint but before he decides whether to sell it, he notices that he lost $10 on the way to the pub. He does not yet incorporate this $10 loss into his reference point for cash. Calculate his selling price for the pint of beer. Explain intuitively why your answer is different from that in part (b). ((1) Finally, suppose that the pub advertises that it will have a $l/pint promotion. Thinking that this is worth it, Mike plans to buy a pint, and incorporates this plan into his reference point. Once he arrives at the pub, Mike is told that the pub has run out of the promotional beer. What is Mike's buying price for a beer now? [Note: for this question, assume that Mike haarmt lost $10 on the way to the pub.] (e) The above strategy of promising an attractive offer but then mak- ing it unavailable is an example of the "bait-and-switch'I strategy in retail sales. Explain intuitively how the bait-and-switch strat- egy works. (f) Give a real- life example of a bait- and switch strategy that you think relies at least partly on reference- dependent preferences. 4. Josh is playing blackjack for real money. He has reference-dependent preferences over money: if his earnings arm and his reference point is r, then his utility isv(m 'r), where the value functionv satises 1411:) = ln(a:+ 1) for .7; 2 0, and 11(1) 2 21n($+ 1) for $3 0. (a) Graph Josh's utility function as a function ofn. 'r. (b) Does Josh's utility function satisfy loss aversion? Does it satisfy diminishing sensitivity? Suppose that Josh has linear probability weights (that is, he does NOT have prospect theory's non-linear probability weighting function). Hence, if he has a fifty-fifty chance of getting amountm and m', and his reference point ism", his expected utility is%v(m r) + 'um' a"). For parts ((2), (d), and (e), assume that Josh's reference point is $0 (that is, no wins or losses) and for the given situation, answer the following questions: (i) What is they for which Josh would be indifferent between taking a fifty-fifty win 3 or lose $5 gamble? (ii) Does this reect risk