Problem $3$

Lindsay evaluates opportunities using the following value function under prospect theory:

$v(w)=w^{\frac{1}{2}}$ when $w>0$

$=-4(-w{)}^{\frac{1}{2}}$ when $w<mn>0</mn>$

Part a$.$

Is Lindsay loss$-$averse? Explain.

Part b$.$

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

$P1(0\mathrm{.}40,8,000,-200)$

$P2(0\mathrm{.}50,12,000,-800)$

$P3(0\mathrm{.}50,2,500,-100)$