A) Consider an individual who faces uncertainty about their health in the future. Health can be good with probability 94%, bad with probability 5%, and really ugly with probability 1%. C = 100,000 is consumption with good health, C = 50,000 is consumption with bad health, and C = 0 is consumption with really ugly health. Utility is . What is the actuarially fairly priced insurance that will compensate fully for the loss? Group of answer choices - $1000 - $2500 - $3500 - 0 B) Given the information of the last question, what is expected utility with no insurance? Group of answer choices - 308.43 - 0 - 30.843 - 100000 C) Given the information of the last two questions, what is expected utility with full insurance that is actuarially fairly priced? Group of answer choices - 0 - 310.64 - 308.43 - 96,500
A) Consider an individual who faces uncertainty about their health in the future. Health can be good with probability 94%, bad with probability 5%, and really ugly with probability 1%. C = 100,000 is consumption with good health, C = 50,000 is consumption with bad health, and C = 0 is consumption with really ugly health. Utility is . What is the actuarially fairly priced insurance that will compensate fully for the loss?
Group of answer choices
- $1000
- $2500
- $3500
- 0
B) Given the information of the last question, what is expected utility with no insurance?
Group of answer choices
- 308.43
- 0
- 30.843
- 100000
C) Given the information of the last two questions, what is expected utility with full insurance that is actuarially fairly priced?
Group of answer choices
- 0
- 310.64
- 308.43
- 96,500
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