1 Explain how prospect theory and/or framing explains the Allais Paradox. (See Problem 11 of Section 13.2.)

2 Suppose a decision maker has a utility function u(x) x1/3.

We flip a fair coin and receive $10 for heads and $0 for tails.

a Using expected utility theory, determine the certainty equivalent of this lottery.

b Using ( p)  1.89799p  3.55995p2