Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays healthy and will earn $500,000. Suppose further that his utility function is the following (utility = square root of income) Malik is risk ____. He will prefer ____ (given the same expected income). a. lover; actuarially fair and full insurance to no insurance b. averse; no insurance to actuarially fair and full insurance c. neutral; he will be indifferent between actuarially fair and full insurance to no insurance d. lover; no insurance to actuarially fair and full insurance e. averse; actuarially fair and full insurance to no insurance
Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays healthy and will earn $500,000. Suppose further that his utility function is the following (utility = square root of income)
Malik is risk ____. He will prefer ____ (given the same expected income).
a. lover; actuarially fair and full insurance to no insurance
b. averse; no insurance to actuarially fair and full insurance
c. neutral; he will be indifferent between actuarially fair and full insurance to no insurance
d. lover; no insurance to actuarially fair and full insurance
e. averse; actuarially fair and full insurance to no insurance
Insurance is a legal agreement between a person and an insurance provider whereby the person agrees to pay recurring premiums in return for financial security against certain risks or losses. In the case of a covered occurrence, such as an accident, sickness, or death, the insurance company consents to pay the person for covered losses.
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