According to the Koszegi-Rabin model, people's reference points are determined by their recent expectations about outcomes. Suppose that, for an endowment effect experiment, people's expec- - are formed prior to entering the lab. According to tations - and thus their reference points the Koszegi-Rabin model, would we expect such people to exhibit a larger or smaller endow ment effect than is predicted by the endowment effect model that we studied in class? Briefly explain TOur ncrer
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- A company has a dental plan for its employees. According to behavioral economics, the participation rate will be about the same wether people are given en easy enrollment form to fill out or are enrolled automatically but given en easy opt-out form to complete if they don’t want to participateWho detected the endowment effect first? Tell us about the design of the experiment and its main conclusions.Assume that a proposer and a respondent are playing an ultimatum game where they split a pie of Rs. 100. What is the backward induction equilibrium of this game? In a laboratory experiment we see that offers from the proposer averaging Rs. 20 are routinely rejected by the respondent. Name one theory that has been used to offer an explanation for this observation. Using that theory what modifications of agent utility functions are needed for such outcomes as described above to be equilibrium?
- Prove that if the Walrasian demand function is generated by a rational preference relation, then it must satisfy the weak axiom. Is the converse true? If yes, prove it, or else give a counterexample?Please answer all parts it would mean alot. For the rest of this question consider a two goods economy where Kim and Jung can trade Ferraris (good x) and VR headsets (good y) with each other. Kim and Jung both enjoy driving Ferraris and having more VR headsets (so more friends can play the same game). They start at the same (high) level of income. Kim has an initial endowment of (x0k, y0k) = (10,30) and Jung has an initial endowment of (x0j, y0j) = (30,10) a) Illustrate the initial endowment in an Edgeworth box. Clearly label the axes and explain the dimensions of the box. Show the indifference curve each of them is on at the endowment point. b) Consider an allocation where Kim gets (xk, yk) = (40,40) and Jung gets the remaining Ferraris and VR headsets. Show where this point is in the Edgeworth box. Is this allocation Pareto efficient? Is it equitable? How likely is this to arise in practice? c) Assume that Kim has preferences Uk (Xk, Yk) = 3Xk + 3Yk and Jung has…The Foundations of Behavioral Economic Analysis Consider the following property of choice correspondence : Show that maximization of complete and transitive preference satisfies β-axiom. I need this ASAP
- Heterogeneity in an endowment economy Suppose we have two typesof households: A and B. The utility maximization problem for a consumerof type i is max InCi,t+β ln Ci,t+1 Ct,Ct+1subject to Ci,t +Ci,t+1/ 1 + rt = Yi,t + Yi,t+1 / 1 + rt Note that the A and B households have the same discount rate and the same utility function. The only thing that is possibly different is their endowments. 1, Write down the Euler equation for households A and B.In a standard economic model, we generally assume the individual only cares about their own payoff. So, for example, utility of individual i is given by u = pi, where pi is the individual’s payoff. Suppose the individual is playing a dictator game with another partner j. How would you modify the utility function to explain the non-zero allocations to the partner that are typically observed?Economics Explain in detail how you would extend the Cox- Ross{Rubinstein binomial tree model for pricing options if instead of considering two states of nature in each period you consider three states of nature (e.g. a good state, a middle state and a bad state). Focus on a tree with two periods (periods 0, 1 and 2) and draw the corresponging trinomial tree.
- Recall inequality aversion model to explain social preference: There are two players, A & B. They decide how to divide $100 between two. Player A first proposes a distribution of ($xA, $xB) with XA2Ó, XB20, and xA + xB = 100, and then Player B decides whether to accept it. Players' payoff functions are given as follows: For player i, where x-i represents the opponent of the player i, a is a parameter and max{C, D} with numbers C, & D is an operator to pick up the greater value between C and D. 4. Recall inequality aversion model to explain social preference: There are two players, A & B. They decide how to divide $100 between two. Player A first proposes a distribution of ($ra, $xx) with x420, XB20, and x4+ xB=100, and then Player B decides whether to accept it. Players' payoff functions are given as follows: For player i, u;(Ti, X=i) = x; – max{x_i – t;, 0} – a max{x; – x-i, 0} where x, represents the opponent of the player i, a is a parameter and max{C, D} with numbers C, & D is an…What is loss aversion? Explain how the topic is related to behavioral economics? Give at least two examples.Indicate whether each of the following examples of behavior is consistent with the way the traditional econiomic framework suggests people should act, or whether it is reserved for behavioral economists to examine. Consistent with the Predictions of Traditional Economic Models Reserved for Behavioral Economics Example Some people would be willing to make a large sacrifice in order to help a loved one. Some people care about how much money they make relative to other people rather than their absolute level of income. Some people treat $95 they earn differently from $95 they win in a random drawing. Some people choose to work fewer hours after receiving a raise at work.