Suppose that a car rental agency offers insurance for a week that will cost $10 per day. A minor fender bender will cost $1,500, while a major accident might cost $15,000 in repairs. Without the insurance, you would be personally liable for any damages. What should

you do? Clearly, there are two decision alternatives: take the insurance or do not take the insurance. The uncertain consequences, or events that might occur, are that you would not be involved in an accident, that you would be involved in a fender bender, or that you would be involved in a major accident. Assume that you researched insurance industry statistics and found out that the probability of major accident is 0.05%, and that the probability of a fender bender is 0.16%.

Analyze the calculations and answer the following questions:

1. Based on the calculation in both scenarios, what is the best value decision for either scenario? What would you do in either scenario? Explain!
2. How would you evaluate the risk involved in either scenario? Explain?