Question
Julio and Freida both have a value function that is given by v(x) = x/3 for gains and v(x)=4x for losses. Their boss, Anika, let
Julio and Freida both have a value function that is given by v(x) = x/3 for gains and v(x)=4x for losses. Their boss, Anika, let it slip to Julio that their employer is going to give everyone a $10 bonus. Julio expects a $10 bonus. The employer reconsiders and gives everyone $4 bonus. Frieda did not hear in advance that they might get a bonus and did not expect one. a) What theory or anomaly in behavioral economics is represented by this value function? Explain. (4 points) b) What is Julio's reference point for their salary before the bonus is given? Calculate their change in value from the bonus. Show your work. Then, indicate the change in value on a graph. (6 points) c) What is Freida's reference point for their salary before the bonus is given? Calculate their change in value from the bonus. Show your work. (4 points)
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