Tversky and Kahneman asked 72 respondents to choose between lottery 1 and lottery 2 and lottery 3 and lottery 4.

Lottery 1: A .001 chance at winning $5,000 and a

.999 chance of winning $0 Lottery 2: A sure gain of $5 Lottery 3: A .001 chance of losing $5,000 and a

.999 chance of losing $0 Lottery 4: A sure loss of $5 More than 75% of all participants preferred lottery 1 to lottery 2 and lottery 4 to lottery 3.

a Which choices would be made by a risk-averse decision maker?

b Which choices would be made by a risk-seeking decision maker?

c How does the observed behavior of the participants contradict expected utility maximization?

d How does prospect theory resolve the contradiction?