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2. Consider an individual with utility function u(w) = wa, a 2. Consider an individual with utility function u(w) = wa, a < 1. (a)

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2. Consider an individual with utility function u(w) = wa, a

2. Consider an individual with utility function u(w) = wa, a < 1. (a) Suppose this individual with initial wealth w risks losing D dollars given a health emergency, which occurs with probability p. One unit of insurance is offered at the actuarially fair price and pays out 1 dollar given a health emergency. Show that the consumer insures fully and derive

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