Explain the following with the help of mental accounting:

$1.$ Piggy banks

$2.$ Casino chips

$3.$ Why so many late night television advertisements for kitchen utensils

sell items that have multitude of used and include several bonus items.

$4.$ Why many manufacturers publish a $$recommended retail price$.$

$5.$ Can you come up with an example of your own?

Problem $2$

When assuming that preferences are not cyclical, the property is sometimes

also called $$no money pump$.$

$1.$ Describe why cyclical preferences could lead to a $$money pump$($i$.$e$.$

how you could make infinite money of a person with cyclical preferences$).$

$2.$ Do you believe that, in reality, humans have cyclical preferences?

$3.$ If yes, would could prevent them from falling prey to a money pump?

Problem $3($Dhami$)$

Consider the following experimental finding:

Subjects were asked: Six month from now you will be purchasing a clothes

washer$/$dryer that costs $$1200.$ There are two methods of paying. In method

$1$ you can pay in six equal monthly installments of $$200$ starting now while

in method $2,$ you pay in six equal monthly installments of $$200$ with the first

installment beginning in six months time.

$84\%$ of subjects prefer method $2($postponement of payment$)$

$1.$ Explain this finding with the red and black model of mental accounting.

$2.$ Try to construct the relevant sequence of hedonic costs and benefits.