Suppose that your liquid wealth is $35,000. You have just bought a $5,000 all-inclusive vacation that you plan to take in December.

The travel agent is trying to sell you trip-cancellation insurance. This insurance will reimburse all the money that you paid (i.e., $5,000) if it happens to snow heavily on your departure date (and so the plane cannot leave). Suppose that there is a 1% chance that a heavy snow could occur on your departure date, and that you are quite risk-averse

(γ = 3). Will you pay $75 for this insurance?