Prospect theory

Consider the following prospects and calculate the utilities of each prospect according to what Khaneman and Tversky propose in prospect theory. Show your calculations.

P1 (0.001, $1,000) and P2 (0.002, $500).

Assume γ = 0.60 and α = 0.85

Refer to the results of survey 5 that the class took at the beginning of the term. Is our class consistent with prospect theory? Explain why or why not.