Chapter 10, Problem 8P

Suppose that Abe and his brother Moe are lost in the desert and are in need of guidance to find an oasis. They can seek such guidance from either a burning bush or a golden calf. Abe has the following preferences: • If Moe chooses to talk to the golden calf, Abe prefers the outcome where he to chooses to talk to the golden calf than talk to the burning bush. • If Moe chooses to talk to the burning bush, Abe is indifferent between the outcome where he choose to talk to the burning bush and the outcome where he chooses to talk to the golden calf. • Regardless of his own decision, Abe prefers all outcomes where Moe talks to the burning bush than if he chose to talk to the golden calf. Moe has the following preferences: • If Abe chooses to talk to the golden calf, Moe prefers the outcome where he chooses to talk to the golden calf than talking to the burning bush. • If Abe chooses to talk to the burning bush, Moe prefers the outcome where he chooses to talk to the golden calf than talking…

When consumers were given the opportunity to select a package of ground beef labeled “75% lean” or a package of ground beef labeled “25% fat,” most consumers chose “75% lean.” Why? What concept from the chapter does this illustrate? The reason is that consumers are swayed by cheap talk. Cheap talk is the concept. The reason is that consumers are much more likely to choose the alternative framed as the positive option. This is called a framing effect. The reason is that consumers infer the value of a product from positive advertising. This is called inference induction. The reason is that consumers respond better to higher numbers. They feel they are getting more because 75 is greater than 25. The concept is the endowment effect.

You are considering going to a football game. However, the roads are cover in ice due to bad weather. Your ticket was a gift. You derive a value of z from attending the game, and a cost of D for driving on the icy roads. Your utility function is given by: ug(Z) + ui(D) = In(Z - 3) - In(2 - D). In your ultimate wisdom, you calculate that the cost of driving on the icy roads is 1 unit (So, D=1). What is the minimum value you must obtain from attending the game, so that you decide to go?   Solution sent me fast ..