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Actuarially Fair Insurance Consider an insurance market that covers full losses with: - 3000 individual policy holders each with $15000 of wealth - The probability
Actuarially Fair Insurance Consider an insurance market that covers full losses with: - 3000 individual policy holders each with $15000 of wealth - The probability of a $10000 loss Pr( Loss =$10000)=0.02 - The probability of a $6000 loss - Pr( Loss =$6000)=0.06 - The probability of a $800 loss Pr( Loss =$800)=0.28 - The probability of a $0 loss - Pr( Loss =$0)=0.64 Unfortunately, the insurer experiences the following mix of losses: 13. Without insurance, what percent of the 3000 individuals would see a decrease in their wealth of $6000 or more? 14. With insurance, what percent of the 3000 individuals would see a decrease in their wealth of $6000 or more? 15. How many individuals would have had a smaller change to their new wealth by NOT buying insurance? Do any of them know this will be the case before they purchase insurance
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