Exercise 7: Insurance Consider two individuals, Dave and Eva. Both Dave and Eva have initial wealth 810, 000 and face a 40% chance of losing L = 450, 000. Dave has von Neumann-Morgenstern utility function up(x) = x and Eva has von Neumann-Morgenstern utility function up(x) = Vx.Suppose they are each able to choose insurance with any coverage level 2 E [03 1] (Le. 0 3 z 5 1). If an individual buys insurance coverage at level 2, they will get reimbursed 450, 000-2 if the loss occurs. Insurance coverage at level 2 costs (2(2) 2 z - 200, 000. 4. What coverage level 23 would Dave choose? Explain. 5. Based on your previous results, try to explain that Eva chooses a strictly positive coverage 227 > 0. 6. Is Eva's optimal choice full insurance, i.e. z}; = 1