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Ex. 3.47 Suppose that you are loss averse, and that your value function is v(x) = x for gains and v(x) = 3x for
Ex. 3.47 Suppose that you are loss averse, and that your value function is v(x) = x for gains and v(x) = 3x for losses. a) Represent the value function graphically, in the manner of Figure 3.11. b) Represent your indifference curves graphically, in the manner of Figure 3.13(b), assuming that your initial endowment is (3, 4). Bananas v(x) v(+1) v(-1) igure 3.11 Value function 3 2 1 Bananas 1 2 3 (a) Without loss aversion 3 2 1 1 2 Apples 3 Apples (b) With loss aversion Figure 3.13 Indifference curves and loss aversion
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