Question
Alice has wealth of $10000 and a utility function u(w)= w With probability 0.1 she gets into a small car accident costing $500 in damages.
Alice has wealth of $10000 and a utility function
u(w)= w With probability 0.1 she gets into a small car accident costing $500 in damages. With probability 0.05 she gets into a bigger accident costing $2000 in damages. With the remaining probability she incurs no losses. Which of the following is closest to her expected utility? 100 97 95 50 10
Consider Alice from the previous question. She is considering purchasing insurance to cover the entire amount of damages in case of an accident. What is the lowest fee a risk-neutral insurance company would charge her for this insurance? 1350 1000 150 100 70
Consider Alice from the previous question. There are three insurance policies: Insurance A covers all damages and costs $200 Insurance B has a deductible $500 and costs $40 Insurance C has a deductible $1000 and costs $20
Which insurance policy is least preferable
Insurance A Insurance B Insurance C more than one of the above none of the above
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