Mr. Banabashi has a house, worth €180,000. He is concerned with earthquake risk and wishes to insure his property. It is known that either there is a rare chance of one in 10,000 of an earthquake causing the house to be destroyed completely. Or there is a more common chance of 1 in 100 of an earth trimmer causing discomfort.
His daughter suggests his father should sell half share of his property and buy a half share of another property with equal earthquake risk. This, she argues will pool his risks. But she has difficulty convincing his father about this. They approach you for consultation.
(a) What would you say to them?

(b) Who do you think is right and why?