. Dana has annual income of $50,000 and there is a 1% chance she will experience an...
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Question:
. Dana has annual income of $50,000 and there is a 1% chance she will experience an accident that will cost her $20,000 in medical expenses. If Dana's utility function is U= M=M0.5 where M is income, what is the most she would she be willing to pay for an insurance policy that would cover all her medical costs when they occur. How would this answer change if Dana's utility function is instead U = M0.1 (the 10th root of M)? Intuitively, why did the value changed the way it did when the utility function changed?
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