Suppose Adam has the utility function U(I) = I^1/2 where I stands for income in thousands of dollars.

Adam's income is $100,000 if there is no fire and only $36,000 if there is a fire. The probability of a fire is 50%. Compare Adam's utilities in the following cases:

Full insurance: If fire happens, insurance pays Adam $32,000, and if no fire happens Adam pays insurance $32,000.

Partial insurance: If fire happens, insurance pays Adam $20,000, and if no fire happens Adam pays insurance $20,000.

No insurance