2.13 Carolyn and Sanjay are neighbors. Each owns a car valued at $10,000. Neither has comprehensive insurance

(which covers losses due to theft). Carolyn’s wealth, including the value of her car is $80,000.

Sanjay’s wealth, including the value of his car is

$20,000. Carolyn and Sanjay have identical utility of wealth functions, U(W) = W0.4. Carolyn and Sanjay can park their cars on the street or rent space in a garage. In their neighborhood, there is a 50% probability that a street-parked car will be stolen during the year. A garage-parked car will not be stolen.