You are planning to rent a car for one week.Suppose a car rental agency offers insurance that costs $10 per day.A minor fender bender will cost $1500, whereas 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.

a) Draw a decision tree for this situation. [4 points]

b) Suppose there is a 2% chance of a major accident and a 15% chance of a minor fender bender. Add this probability information to your tree above and solve the decision tree. What would an expected value decision maker do?[3 points]

c)Assume the probability of a major accident will never exceed 10%.Demonstrate using 2 sensitivity graphs (one assuming the probability of major accident is 0% and the other assuming it is 10%) whether or not it would ever make sense to self-insure.[3 points]

Should you ever self-insure?YESNO