Question: Consider a person with the following value function under prospect theory: v ( w ) = w .5 if w 0 =-2(- w ) .5

Consider a person with the following value function under prospect theory:

v(w) = w^.5if w 0

=-2(-w)^.5if w < 0

a.Is this individual loss averse? Explain

b.Assume that this individual weights values by probabilities, instead of using prospect theory weighting function. Which of the following prospects would be preferred?

P1(.8, 1000, -800)

P2(.7, 1200, -600)

P3(.5, 2000,-1000)

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