2. Consider a loss averse DM with utility function u(x) = x (where x is dollars) and 1 2 1. You offer them two possibilities: Option i. Two sequential 50-50 coin flips, where on each flip heads means you win j > 1 dollars and tails means you lose one dollar, and you learn the result of flip 1 before flip 2. Option ii. Two sequential 50-50 coin flips, where on each flip heads means you win k > 1 dollars and tails means you lose one dollar, and you will not learn the result of flip 1 before flip 2. a) As a function of 1, how much bigger must j be than k before this DM picks option i over option ii? Explain the relationship you found. b) Explain how the model of loss aversion is related to Prospect Theory and its motivating evidence from Kahneman & Tversky (1979) that we discussed in class