Question
Barney has $80,000 in income per year and faces a 20% chance of having $25,000 in unexpected medical bills. Suppose Barney's utility function over income
Barney has $80,000 in income per year and faces a 20% chance of having $25,000 in unexpected medical bills. Suppose Barney's utility function over income is
U = I1/2
Show mathematically that Barney would be better off with an actuarially fair insurance policy, as opposed to having no insurance.
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Macroeconomics
Authors: David Colander
8th edition
978-0078004407, 78004403, 978-0077247171, 77247175, 978-0077307110
