Kevin's reference dependent utility over moneyis y and effort is E, refer to the: instantaneousutility function:Ye – E, + (Yt – Pe) éf Ye – re 20Ye - E, +2(y: – re) if Yt – T: < 0|u(Ye, Et, rt) = {rt: reference point for wealth, whichdemonstrated his recent wealthKevin does not have from money but from gainsand losses of money instead. There is nodiscounting, and assume that Kevin's currentwealth from his job is 0.Kevin is thinking about a new role at work whichallows him to increase his income by $1000 perperiod for two periods, counting from thecurrent period, which is t = 0. He must undergoa training which require an effort of EO = 3500at that value of alpha, how much ultility wouldKevin lose relative to his non-projection-biasedpreferences if she took the position1000250500750

A utility function in economics and decision theory is a mathematical representation of an…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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