1. Imagine that every year, a person is equally likely to be in good health (where their health bill will be $0), fair health (where their health bill will be $300), or poor health (where their health bill will be $24000). It is currently open enrollment period at his workplace, and Yanis must decide whether or not to purchase health insurance next year. If he buys insurance, all his future health expenses will be fully covered; else, he will have to pay for expenses out of pocket. = (a) Assume Yanis only cares about how much net income (m) he has: u(c, health) : m. What is the most that Yanis is willing to spend on health insurance next year? (b) Imagine that Yanis has full projection bias. He believes that next period's health will be identical to his current period's health. For each health outcome possible (good, fair, poor), calculate the most Yanis is willing to spend on health insurance in the following year? 4* (c) Imagine that Yanis has projection bias a = 3. If Yanis is in good health today, calculate the most Yanis is willing to spend on health insurance in the following year? If Yanis is in poor health? (d) Suppose that insurance cost $6480. What degree of projection bias a must Yanis have in order to buy it if he is in good health today? 1. Imagine that every year, a person is equally likely to be in good health (where their health bill will be $0), fair health (where their health bill will be $300), or poor health (where their health bill will be $24000). It is currently open enrollment period at his workplace, and Yanis must decide whether or not to purchase health insurance next year. If he buys insurance, all his future health expenses will be fully covered; else, he will have to pay for expenses out of pocket. = (a) Assume Yanis only cares about how much net income (m) he has: u(c, health) : m. What is the most that Yanis is willing to spend on health insurance next year? (b) Imagine that Yanis has full projection bias. He believes that next period's health will be identical to his current period's health. For each health outcome possible (good, fair, poor), calculate the most Yanis is willing to spend on health insurance in the following year? 4* (c) Imagine that Yanis has projection bias a = 3. If Yanis is in good health today, calculate the most Yanis is willing to spend on health insurance in the following year? If Yanis is in poor health? (d) Suppose that insurance cost $6480. What degree of projection bias a must Yanis have in order to buy it if he is in good health today