2 QUESTION 2Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week shediscovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the newpair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid somuch for them." Sara's behaviorOA. is rational: she should not discard a valuable item.B. is rational because the more you pay for an item the more valuable it is.C. ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should givethem away or not.D. supports the endowment effect which states that ownership of an item makes it more valuable.

According to the endowment effect, a phenomenon in behavioral economics, people regard things more…

QUESTION 2 Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the new pair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid so much for them." Sara's behavior A. is rational: she should not discard a valuable item. B. is rational because the more you pay for an item the more valuable it is.