Suppose that there is a 25% chance Riju is injured and earns $180,000, and a 75% chance she stays healthy and will earn $900,000. Suppose further that her utility function is the following: U = (Income). Riju is risk. She will prefer (given the same expected income). averse; no insurance to actuarially fair and full insurance lover; actuarially fair and full insurance to no insurance averse; actuarially fair and full insurance to no insurance neutral; he will be indifferent between actuarially fair and full insurance to no insurance lover; no insurance to actuarially fair and full insurance
Suppose that there is a 25% chance Riju is injured and earns $180,000, and a 75% chance she stays healthy and will earn $900,000. Suppose further that her utility function is the following: U = (Income). Riju is risk. She will prefer (given the same expected income). averse; no insurance to actuarially fair and full insurance lover; actuarially fair and full insurance to no insurance averse; actuarially fair and full insurance to no insurance neutral; he will be indifferent between actuarially fair and full insurance to no insurance lover; no insurance to actuarially fair and full insurance
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.1P
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Transcribed Image Text:Suppose that there is a 25% chance Riju is injured and earns $180,000, and a 75% chance she stays healthy and will earn $900,000. Suppose further that her utility function is the
following:
U = (Income).
Riju is risk. She will prefer
(given the same expected income).
averse; no insurance to actuarially fair and full insurance
lover; actuarially fair and full insurance to no insurance
averse; actuarially fair and full insurance to no insurance
neutral; he will be indifferent between actuarially fair and full insurance to no insurance
lover; no insurance to actuarially fair and full insurance
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