Consider two risk averse individuals, Risky Rick and Safe Sal. Rick and Sal both live in an uncertain world. Rick has a family history of cardiovascular problems, while Sal's family history suggests she has little chance of developing such problems. Indeed, Rick's probability of contracting the disease is R = 50%, while Sal's is just S =10%. For simplicity, let's assume that Rick and Sal have the same income Y and are otherwise identical, and that developing heart disease is the same as suffering a loss of income L. Thus in the event of disease, net income is Y-L (assumed greater than zero).

-Draw a diagram with income without heart disease on the horizontal axis, and income with heart disease on the vertical axis, and mark Rick's endowment point.