only focuse to anwers the questions 1 through 3. this discussion board was break it down in two section.

Insurance Experiment

Half of the class will be assigned as sickly and half of the class will be assigned as healthy. Sickly people are predisposed to becoming ill but healthy people never get ill.

Students will be randomly assigned a type - either Sickly(S) or Healthy(H).For each decision you make below, you will either be randomly assigned as sickly or healthy. The determination of who is sickly and who is healthy is completely random (50% chance of each type) and is independent across the two decisions.

If you are sickly you face a 50% chance of becoming ill. If you become ill, you suffer a loss of 3 points in this assignment.

Insurance Market: Anyone can purchase insurance for 1 point. If you are sickly and become ill and you have insurance, you will be compensated 3 points. If you are healthy, there is no benefit from insurance - insurance only pays out if you become ill and healthy people cannot become ill.You must pay the 1 point to purchase insurance even if you do not become ill.^[1]

Decision 1. You do not know your type.You can either be sickly or healthy with a 50% chance of each. Each person chooses to either purchase insurance or not and this is posted in the Discussion Board for this experiment. This should be labeled Decision 1:

Decision 2. Here we will simulate the market if you did know your type - sickly or healthy.^[2] this, you must make a choice for each type that you might be.You are either sickly or healthy but you must make a choice in each case and only the choice which is your true type (which is randomly assigned as outlined above) is enforced.Post your decision in Discussion Board for the experiment with one decision for each type that you might be. This should be labeled Decision 2:

In summary, your discussion thread you create should look similar to the one below.

Decision 1: XXX

Decision 2: if sickly YYY

Ifhealthy ZZZ

Where XXX, YYY, and ZZZ are your decisions to either buy or not buy insurance.

Insurance Experiment

Your grade will be determined as outlined above with two exceptions.First, if you post your decisions but either leave out some information or do not post using this format you will receive only 6 out of the 10 points for this assignment. Second, if you fail to post any decisions before the deadline, you will receive zero points.

Your grade:

One of your decisions will be randomly chosen and the outcome will be enforced in your grade.

For example, suppose you are healthy in Decision 1 and are Sickly in Decision 2. Thus if you post the below to the discussion board for the experiment your grade will be determined as...

Decision 1: Buy

Decision 2: if sickly: Buy

If healthy: Don't buy

If decision 1 is randomly selected:

Since you are healthy in Decision 1, your grade if decision 1 is randomly selected to be enforced would be (points possible) minus (cost of insurance) =10-1 = 9

If decision 2 is randomly selected:

Since you are sickly in decision 2 you have a chance of becoming ill. If you are determined to be ill then you will suffer a loss of 3 points.

Since your type in decision 2 is sickly and you purchased insurance your score will be given by,

If ill then score is: (points possible) minus (cost of insurance) minus (penalty for being ill) plus (benefit from insurance)=10-1-3+3 = 9

If you are not ill then score is: (points possible) minus (cost of insurance) =10-1 = 9

In the activity you were asked to make a series of decisions in a health insurance market. Here are the

data from our insurance experiment (actually this is data from a previous class so that we can have this

discussion in a timely fashion). Seventy students participated in the experiment.

Decision 1 Data:

In this decision you did not know if you were healthy or sick. Of the seventy students who participated,

97.1% chose to buy insurance in Decision #1. Thirty six of the students were sick and of those 36,

twenty one of them became ill. All of the ill participants were insured except one.

Decision 2 Data:

In this decision every person was assigned a type of either healthy or sick.

33 of the 70 students were healthy and the other 37 were sick.

50 people buy insurance.

19 people become Ill.

All 19 people who become Ill have purchased insurance.

Discussion:

If you post your answers to each of the three questions below before the deadline, you will get the full

ten points for the discussion. The questions do not need to be answered mathematically or with a

calculation. If you feel the need to use mathematics to make a calculation, then you are free to do so but

the questions are merely asking you for a number and how you arrived at that number. If you do not do

any calculations to arrive at the number, just say how you arrived at the number. (There are no incorrect

answers.)

Discussion question 1:

If you purchased insurance in decision 1, what would be the maximum number of points you would have

paid to purchase insurance? Explain how you arrive at this number.

If you did not purchase insurance, at what price would you be willing to purchase insurance? Explain

how you arrive at this number.

Discussion question 2:

For this question I want you to think of yourself as the insurance company which is selling insurance. If

you knew the data from decision 1, what would be the minimum price you would sell insurance at?

Explain how you arrive at this number.

Discussion question 3:

Again, for this question I want you to think of yourself as the insurance company which is selling

insurance. Given the information from decision 2 and assuming that people know if they are sick or

healthy, what would be the minimum price you would sell insurance at in this market? Explain how you

arrive at this number

[1] This is a simple overview of how an insurance market works. Someone, typically an insurance company, offers to insure an unknown future event and then compensates the person only if that event occurs in the (unknown) future. This general idea of insurance is true if you are insuring health, life, automobiles, movies and weddings or divorces - any unknown future event is insurable. See.... 10 of the Weirdest Insurance Policies We've Come Across (hni.com)

[2] When a person makes a decision in every possible state that she may foresee, this has been termed by Game Theorists the strategy method of choice elicitation. See.. https://en.wikipedia.org/wiki/Game_theory Page 1 of 2

This document and the contents therein are the property of Dr. Curtis R. Price and cannot be distributed or recreated without written consent from Dr. Price