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

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Kevin's reference dependent utility over money
is y and effort is E, refer to the: instantaneous
utility function:
Ye – E, + (Yt – Pe) éf Ye – re 20
Ye - E, +2(y: – re) if Yt – T: < 0
|
u(Ye, Et, rt) = {
rt: reference point for wealth, which
demonstrated his recent wealth
Kevin does not have from money but from gains
and losses of money instead. There is no
discounting, and assume that Kevin's current
wealth from his job is 0.
Kevin is thinking about a new role at work which
allows him to increase his income by $1000 per
period for two periods, counting from the
current period, which is t = 0. He must undergo
a training which require an effort of EO = 3500
at that value of alpha, how much ultility would
Kevin lose relative to his non-projection-biased
preferences if she took the position
1000
250
500
750

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