3-47 The Long Island Life Insurance Company sells a

term life insurance policy. If the policy holder dies

during the term of the policy, the company pays

$100,000. If the person does not die, the company

pays out nothing and there is no further value to

the policy. The company uses actuarial tables to determine

the probability that a person with certain

characteristics will die during the coming year. For

a particular individual, it is determined that there is

a 0.001 chance that the person will die in the next

year and a 0.999 chance that the person will live and

the company will pay out nothing. The cost of this

policy is $200 per year. Based on the EMV criterion,

should the individual buy this insurance policy?

How would utility theory help explain why a person

would buy this insurance policy?