Question
A risk averse expected utility maximiser owns a house worth y. There is a 50% chance that the house will be damaged by a storm,
A risk averse expected utility maximiser owns a house worth y. There is a 50% chance that the house will be damaged by a storm, incurring a loss of L.
Suppose that the agent is risk-seeking. Describe and illustrate in a state-contingent diagram an agreement that would make the agent better off, and that the firm would be willing to accept.
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Economics
Authors: John Sloman, Jon Guest, Dean Garratt
10th edition
1292187859, 9781292187907 , 978-1292187853
