Hello,

I've done this question multiple times and know that the expected utility of Shirley purchasing the insurance and not purchasing the insurance should both come out to $192,500, but I keep getting $187,500 for the EU of her not buying the insurance. I'm setting up the problem like this: EU no insurance = .1(75,000) +.9(200,000). What am I doing wrong?

Question 3: Risk Attitudes. Shirley owns a house worth $200,000. The value of the building is $75,000 and the value of the land is $125,000. In the area where she lives there is a 10% probability that a fire will completely destroy the building in a given year (on the other hand, the land would not be affected by a fire). An insurance company offers a policy that covers the replacement cost of the building in the event of fire. There is no deductible. The premium for this policy is $7,500 per year. What attitude to risk must Shirley have in order to buy the insurance policy? Explain your answer.