Chapter 20, Problem 13QP

### Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

Chapter
Section

### Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

# After each toss of a coin, one person has more money and one person has less. If the person with less money cares about relative rank and status, will he be willing to pay, say, $1 to reduce the other person’s winnings by, say, 50¢? Will he be willing to pay 25¢ to reduce the other person’s winnings by$1? Explain your answers.

To determine

Identify the willingness to pay.

Explanation

There are two persons in the given situation. The first person has more money and the second person has less money after each toss. Here, the second person is concerned about the relative rank and status than the absolute rank. There are two options in front of him to reduce the other person’s winnings. In the first option, the second person has to pay \$1 to reduce the first person’s winnings by 50. This option is not an acceptable one. The reason is, in an absolute sense, the second person is very poorer than the first person

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