Question: Prospect evaluation, cont. This exercise refers to Example 7.7 above. Suppose that your value function v() is defined by v (x) = x/2 for gains

Prospect evaluation, cont. This exercise refers to Example 7.7 above. Suppose that your value function v(·) is defined by v (x) = √x/2 for gains (x ≥ 0) and v (x) = −2√|x| for losses (x < 0).

(a) Draw the curve for values between 24 and 14. Confirm that it is concave in the domain of gains and convex in the domain of losses.

(b) Assuming that you have integrated the $1000 into your endowment, what is the value of (A)?

(c) Assuming that you have integrated the $1000 into your endowment, what is the value of (B)?

(d) Assuming that you have integrated the $2000 into your endowment, what is the value of (C)?

(e) Assuming that you have integrated the $2000 into your endowment, what is the value of (D)?

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