Explain the following almost universal features of late-night infomercials (a $2 billion industry) using reference-dependent preferences by answering our three questions: (i) what outcome is being evaluated in a reference-dependent way? (ii) what is the reference point?; and (iii) what feature of the value function explains the phenomenon, and how?
(a) The infomercial names a price, but then gives a discount and sells at a cheaper price.
(b) The infomercial presents a baseline product as if that was it, but then keeps adding other products to the o er (but wait, there's more!") Explain both why they do not just sell a single product, and why they break down the additional o ffers into many pieces instead of presenting it as a single package.
(c) The infomercial sets a short deadline for buying.