Consider the following situation: 100 people are gathered in a room and 50 of them are selected at random and given a mug, those that were given the mug are asked for the minimum amount of money they would need to give up the mug and those without the mug are asked for the maximum amount they would be prepared to pay for the mug.
(a) What does standard theory predict about the average amounts written down in each of the groups (those given the mug and those not given the mug).
(b) What would you predict about the amounts written down by people in each group? Which effect is at work?
(c) Which element of Prospect Theory is consistent with the observations typically found in experiments of this type.