Consider a person with a current wealth of $100,000 who faces the prospect of a 25 percent chance of losing his or her $20,000 automobile through theft during the next year. Suppose also that this person's utility index is logarithmic; that is, U(W) = InW. Calculate fair insurance premium in this case.

Consider a person with a current wealth of $100,000 who faces the prospect of a 25 percent chance of losing his or her $20,000 automobile through theft during the next year. Suppose also that this person's utility index is logarithmic; that is, U(W) = InW. Calculate fair insurance premium in this case.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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