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

v(w) = w^1/2 when w > 0

= -4(-w)^1/2 when w < 0

Part a.

Is this individual loss-averse? Explain.

Part b.

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

P1(.8, 1,000, -400)

P2(.7, 2,500, -600)

P3(.6, 2,000, -1,000)