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Microsoft Word - 2016s_ps1 Consider an individual with $10,000 in initial wealth that faces a potential loss of $3,600. (Wealth would then be $6,400 if
Microsoft Word - 2016s_ps1
Consider an individual with $10,000 in initial wealth that faces a potential loss of $3,600. (Wealth would then be $6,400 if the loss occurs and the individual does not buy insurance.) The probability of the loss is 25%. The individual has expected
utility preferences with the utility function u=
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