Suppose Theo has reference-dependent preferences not just over money and teddy bears, but over money, teddy bears, and blocks.

Suppose Theo has reference-dependent preferences not just over money and teddy bears, but over money, teddy bears, and blocks. Let his consumption in money, teddy bears, and blocks be c1, c2, and c3, respectively, and let his reference points in money, teddy bears, and blocks be r1, r2, and r3, respectively. Then, Theo’s utility is given by

v(c1 − r1) + v(4c2 − 4r2) + v(4c3 − 4r3),

where v(x) = x for x ≥ 0, and v(x) = 2x for x < 0. Normalize Theo’s initial amount of

money to zero, and suppose he starts off with zero teddy bears and zero blocks.


Theo arrives at the experiment, and it turns out that he receives an $8 show-up fee, which he does not incorporate into his reference point for money. Suppose Theo is given a teddy bear (and he does incorporate this into his reference point). Calculate his selling price by writing down his reference point; and solving for the price pS that makes him indifferent between keeping his teddy bear and receiving nothing and giving up his teddy bear and getting pS.

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10