BEHAVIORAL ECONOMICS :PLEASE HELP ! 1)Imagine that you paid $80 for a ticket for
ID: 1109819 • Letter: B
Question
BEHAVIORAL ECONOMICS :PLEASE HELP !
1)Imagine that you paid $80 for a ticket for a college basketball game to be played about an hour’s drive away. The ticket cannot be sold. On the day of the game, there is a freak snowstorm that makes driving hazardous.
Would you go to the game? Why? Explain.
Now, imagine that the ticket instead was given to you for free. Would you be more or less likely to go to the game? Why? Explain.
2)Anne and Julie are loss averse: their value function is v(x)=x/3 for gains and v(x)=3x for losses. The two hold stock in the same company. They bought it yesterday, when the stock price was $7. Today, it dropped to $4.
Anne uses the original price ($7) as her reference point. How much value did she lose when the price dropped to $4?
Julie uses the new price ($4) as her reference point. How much value did she lose when the price dropped to $4?
Who is more disappointed? Anne or Julie?
3)Imagine that an editorial board of 20 members is all male.
What is the probability that this would happen by chance alone assuming that the board member are drawn from a pool of ½ men and ½ women?
If the pool of qualified individuals is not balanced in terms of gender, and the pool consists of 2/3 men and 1/3 women. What is the probability that this would happen?
And what if it is 4/5 men and 1/5 women?
Explanation / Answer
1. I would not go to the game if it is hazardous to drive becaue of the storm. I will not like to take chance on my life.
Now, if the ticket was free, I will be even less likely to go. In case I paid, I would still like to recover the ticket price by enjoying the game. However, if it was for free, I will not think like recovering any investment. So, I will be less likely to go when the ticket was free.
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