However, this fundamental paper proves that observed levels of risk aversion cannot be thus explained.

This paper has come up before, and I still don't think it proves anything of the sort. Yes, if you choose crazy inputs a sensible function will have crazy outputs--why did this get published?

In general, prospect theory is a better descriptive theory of human decision-making, but I think it makes for a terrible normative theory relative to utility theory. (This is why I specified consistent risk preferences--yes, you can't express transaction or probabilistic framing effects in utility theory. As said in the grandparent, that seems like a feature, not a bug.)