Problem 2 [28pt] Let x be the amount of money subject 1 receives and y be the amount of money subject 2 receives. Subject 1 may have "standard" preferences (denoted by S), defined as up (x, y) = I, or Fehr-Schmidt preferences (denoted by FS), defined as us(x, y) = r - ar-y, where x- y denotes the absolute value of (x -y) and a > 0. That is, the utility of subject 1 with FS preferences depends on both subject I's money a as well as subject 2's money y. You are asked to design an experiment that would determine whether subject 1 has S or FS preferences. In your design, you need to find two bundles (x], y') > > 0 and (x', y?) > > 0 such that subject 1 with S-preferences would necessarily choose (x), y) ), while subject 1 with FS-preferences would necessarily choose (2' , y?). EXAMINATION CONTINUES ON THE NEXT PAGE Page 2 of 5