7. [6 points] Consider a lottery whose outcomes are normally distributed with mean = $7 and...

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7. [6 points] Consider a lottery whose outcomes are normally distributed with mean = $7 and standard deviation = $20. Consider an individual with prospect theory utility function with V(x) = x and loss-aversion parameter = 2.25. When facing a choice between (i) taking the lottery or (ii) abstaining and getting 0 for sure, how does this individual decide? Answer this question by simulating 1000 draws from the lottery and evaluating prospect theory utility of each draw numerically. Name the mathematical theorem that ensures that the answer you obtain by simulation will be reasonably accurate, as long as you simulate sufficiently many draws. 7. [6 points] Consider a lottery whose outcomes are normally distributed with mean = $7 and standard deviation = $20. Consider an individual with prospect theory utility function with V(x) = x and loss-aversion parameter = 2.25. When facing a choice between (i) taking the lottery or (ii) abstaining and getting 0 for sure, how does this individual decide? Answer this question by simulating 1000 draws from the lottery and evaluating prospect theory utility of each draw numerically. Name the mathematical theorem that ensures that the answer you obtain by simulation will be reasonably accurate, as long as you simulate sufficiently many draws.