Suppose your classmate Roby is faced with the following decision: they either receive $7,000 with certainty, or a 50-50 chance of receiving $3,500 or $10,500. Suppose Roby prefers the certain $7,000. True or False: Based on their preferences, Roby is not a risk averse person. O True O False Suppose there is a disease certain to impact exactly 5% of a population and that each member of the population is equally likely become infected Treatment for individuals who are infected costs $32,000. Assume in this scenario that the necessary treatment for the disease is the only healthcare cost faced by this population. to pay the expected cost of healthcare with The expected cost of healthcare S If members of the population certainty, rather than take on the 5% risk of having to pay the full cost of the treatment, they are risk averse

Suppose your classmate Roby is faced with the following decision: they either receive $7,000 with certainty, or a 50-50 chance of receiving $3,500 or $10,500. Suppose Roby prefers the certain $7,000. True or False: Based on their preferences, Roby is not a risk averse person. O True O False Suppose there is a disease certain to impact exactly 5% of a population and that each member of the population is equally likely become infected Treatment for individuals who are infected costs $32,000. Assume in this scenario that the necessary treatment for the disease is the only healthcare cost faced by this population. to pay the expected cost of healthcare with The expected cost of healthcare S If members of the population certainty, rather than take on the 5% risk of having to pay the full cost of the treatment, they are risk averse

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the following information: Patients who are given Treatment A live for one year in Health State q = 0.8 and certainly live for another year in Health State q = 0.5. Patients who are given Treatment B live for one year in Health State q = 1.0 and then either die with probability 70% or live for another year in Health State q = 1.0 with probability !3! 30%. Which of the following statement is TRUE regarding the abovementioned information? If the second year is discounted at rate r= 0.10 then the expected present value QALYS for treatment A and B is 1.35 and 1.33, respectively. O If the second year is discounted at rate r = 0.10, Treatment A and B yield the same more expected present value QALYS. If the second year is discounted at rate r= 0.10, Treatment A yields more expected present value QALYS. If the second year is discounted at rate r = 0.10 then the expected present value QALYS for treatment A and B is 1.25 and 1.27, respectively. O If the second year is discounted at rate…
d e and f please
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Shane just bought a house worth $360,000 in an area that is known for floods. A flood occurs with a 5% chance and if it occurs, his home is ✓ for reduced in value to $202,500. Shane has utility function given by U(X)=√√X. He would be willing to pay a maximum of flood insurance. The fair insurance premium for flood insurance is Shane's risk premium is Suppose, instead, that Shane's utility function is given by U(X) = X². Then, the maximum he would be willing to pay for flood insurance is
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Exercise 5: Insurance Consider two individuals, Dave and Eva. Both Dave and Eva have initial wealth 810,000 and face a 40% chance of losing L = 450, 000. Dave has von Neumann-Morgenstern utility function up(x) = x and Eva has von Neumann-Morgenstern utility function ug (x) = VT. 1. What do you know about Dave's and Eva's risk preferences? 2. What is the most Dave would be willing to pay for complete insurance against the loss? 3. What is the most Eva would be willing to pay for complete insurance against the loss? Suppose they are each able choose insurance with any coverage level z [0, 1] (i.e. 0 0. 6. Is Eva's optimal choice full insurance, i.e. z = 1?
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