Jane and Tuiara both work for the same marketing company, Sales Plus, and have the value function v(x) = x/4 for gains (x > 0) and v(x) = 2x (x < 0) for losses.
a. Graph the value function for the following x values: -400, -200, -100, +100, +200, +400. Measure x on the horizontal axis and v(x) on the vertical axis. b. Sales Plus is having a great month and announces that it will give each employee a $200 bonus at the end of the month. If neither Jane nor Tuiara were expecting a bonus prior to the announcement, in terms of value, how much do they each gain following the announcement?
c. At the end of the month, Sales Plus's profit is less than expected so it only gives each employee a $100 bonus.
i. Jane incorporated the $200 bonus into her endowment when it was announced. In terms of value, how much does she lose when the bonus is reduced to $100?
ii. Tuiara did not incorporate the $200 bonus into her endowment when it was announced. In terms of value, how much does she lose when the bonus is reduced to $100?
d. In terms of value, what is Jane's net gain from the announcement of the $200 bonus and subsequent awarding of a $100 bonus? What is Tuiara's net gain from the same sequence of events? e. Who is happiest at the end of the month? Explain your answer using the concept of loss aversion.