Prospect Theory and what it means for economics

Traditional Economics is based on the notion of a utility function which increases as a concave function) with increasing levels of wealth. Our decisions as economic actors therefore boil down to selecting the option that generates the highest expected utility. But ask yourself this, faced with a fair one off gamble in which you might make 2000 dollars or you might lose 1000 dollars, what would you do? Most people would choose not to gamble even though the expected utility will be positive. Why? Note that this is not true if we were able to play the game say a thousand times - in which case almost everyone will take the bet.
Behavioral theorists suggest this unwillingness to take the single bet is because we care about losses more than gains, counter to the principles of traditional utility theory, and so have posited a prospect theory that charges a greater value loss for losses in current wealth that for gains. If you like, the utility function is "kinked" around the current level of wealth.

Most of financial markets are based on a zero sum game. Consider a structured product. If I win, you must lose and vice versa. Financial engineering can only add value to such transactions by exploiting the differences in the preferences of the transactors. For example by emphasing the elements of the transaction that most appeal to the other side, say high returns, or delayed payment, or low risk. Being a zero sum game, these elements are paid for by subtracting from aspects of the transaction that the counterparty does not care so much about, like operational complexity, or like risk.  Value is created from the transaction (but not utility however) if the structure reflects the differences in the counterparties wants and needs. Prospect theory  acknowledges that value is inherently client specific (it depends on their reference point for example), and that financial product design is really about understanding behavioral biases in order to better align. So is Prospect theory purely descriptive while Utility theory is normative? Should we give up structured products because they pander to our cognitive weaknesses? Although Prospect theory is partly descriptive, it is also normative. Other counterparties have cognitive biases too, and we must interact with them, so it behooves us to understand and acknowledge these biases/limitations/constraints in our transactions with them.