How does joining a gym with a monthly membership  change the situation?

Behavioural economics

Explain what the ‘ultimatum game’ and the ‘trust game’ are, and what the commonly observed choices in these games imply about behaviour using the language of

A2. The cost of going to the gym is comprised of a monetary cost of 7 and a psychological cost, the monetary equivalent of which is 8. The benefit from going to the gym – which is enjoyed the period after going to the gym – is 20. Suppose that Sarah has preferences with and . Show that Sarah will plan to go to the gym but when the time comes won’t go. How does joining a gym with a monthly membership  change the situation?

A3. In the context of a ‘p-beauty contest’, briefly describe how a level-k model of non-equilibrium strategic thinking works to explain the commonly-observed pattern of behaviour in such games.

A4. Harry is in secondary school. He typically has slightly below average academic attainment but usually works hard. His class has been separated into three groups according to ability: low; medium; and high. Harry has been allocated to the low group. His teacher has noticed that he is working less hard in class and has started to fall behind. As a response, she moves him to the middle ability group. Use the ideas of reference dependence, with reference points influenced by peer group, loss aversion and diminishing sensitivity to explain why this might be a good idea to improve Harry’s educational attainment .