and IS

=$0, with probability of illness p=0.2. Is the standard contract fair and/or full for Jay?

d Suppose there is a customer named Ronald for whom the standard contract is partial and actuarially unfair in the insurance company’s favor. Give a set of possible values for Ronald’s IH, IS, and p. Recall that we always assume IH >IS.

e Now suppose that we have learned that Ronald’s IS

=$200, but we do not know the value of his healthy-state income, or his probability of falling ill. Derive an upper bound for p and a lower bound for IH.

f True or false: if we assume all four individuals are risk-averse, then we know that Tim has the most to gain by taking up the contract. Justify your answer.