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Bill's value function:
Suppose Bill were to experience a large negative shock to his wealth that does not immediately
change his reference point. Could this shock cause him to change his decision concerning the
$100 and gamble A? Draw a diagram showing the possible payoffs, Bill's value function and the
value of each option. Explain how this diagram illustrates Bill's decision after the shock. Is the
diagram below correct?V(x)={x1/22(x)1/2wherex0wherex<0
16:14 Wed 22 Mar (0) (i) 89

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Bills value functionSuppose Bill were to experience a large nega.pdf

  • 1. Bill's value function: Suppose Bill were to experience a large negative shock to his wealth that does not immediately change his reference point. Could this shock cause him to change his decision concerning the $100 and gamble A? Draw a diagram showing the possible payoffs, Bill's value function and the value of each option. Explain how this diagram illustrates Bill's decision after the shock. Is the diagram below correct?V(x)={x1/22(x)1/2wherex0wherex<0 16:14 Wed 22 Mar (0) (i) 89