Ejercicio 3 (a-c) - Decisió econòmica racional i biaixos · Economia de L'empresa UPF 2016

3. Questions 17-24: Value functions, specialization, and market coordination mechanisms

Select the single correct answer for each of the following multiple-choice questions:

a.

Consider the following piecewise value function over monetary gain/loss $g$, with positive constants $a$ and $b$:

$$V(g) = \begin{cases} a\sqrt{g} & \text{when } g \ge 0 \\ -b\sqrt{-g} & \text{when } g < 0 \end{cases}$$

Under what condition does $V(g)$ reflect the asymmetry characteristic of loss aversion as established in prospect theory?

b.

According to standard economic models of rational behavior:

c.

Persisting with an unprofitable business project simply because significant funds have already been committed is a widespread management bias. This practice: