Answered: What is the expected value of perfect…

Business

Economics

What is the expected value of perfect information (EMVPI)?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter29: Interest, Rent, And Profit

Section29.4: The Entrepreneur

Problem 1ST

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could you answer part b to this question or if you have time part a and part b but part is more important. thank you Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?
the video link is: https://www.youtube.com/watch?v=aqEz6kvXhc8please give me detailed solutions and calculations, thank you!
Yuri owns just one ship, he calls it Previt. The ship is worth $25 million dollars. If the ship sinks, Yuri loses $25 million. The probability that it will sink is .02. Yuri's total wealth, including the value of the ship is $50 million. He is an expected utility maximizer with utility U(W) equal to W?. What is the maximum amount that Yuri would be willing to pay in order to be fully insured against the risk of losing his ship? a. $4 million b. $ 1.96 million c. $ 0.39 million d. $ 3.9 million e. $ 5.96 million f. None of the above, the right answer is:
Do it correctly this time
Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?
Answer all questions. Imagine you are a person with a chronic disease. If the disease flares up, you will have to take substantial leave from work. The probability of the flare-up is 0.2 (or 20%). If you do not need to take leave from work, your income is $6400. If you take leave from work, your income is $1600. What is the expected value of your income? Expected utility E [= (U(1)] = pU (IS) + (1-p) U (IH) 1600 x 0.2 + 0.8 x 6400 = 5540 Assume that your utility function . What is the expected utility of your income? 0.8 √ 6400 + 0.2 √1600 = 72 utils Suppose a company is offering insurance where your premium is $500 and your payout is $2000. What is your expected utility from taking on this insurance? (Hint: you need to calculate your adjusted earnings in both states)
Why do economists say that people tend to be risk-averse?
Suppose you have a house worth $200,000 (wealth). Your utility of wealth is given by U(w) = ln(w). There is a small chance that a fire will damage your house causing a loss of $75,000. You estimate there is a 2% chance of fire. a) What is your expected wealth? b) What is your expected utility from owning the house? c) Suppose you can add a fire detection/prevention system to your house. This would reduce the chance of a bad event to 0 but it would cost you $C to install. What is the most you are willing to pay for the security system? (Here is an identity you will find useful
Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index u(x) = square root x . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain
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. Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index u(x) = square root x. There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?
In the summer of 1984, Nicholai opened a small art gallery in the West Village and amassed a collection worth $2,60,000. An insurance company figured there was a 5% chance the collection would be destroyed and worth $0. Nicholai has utility u(x) = x0.5. If Nicholai purchases full insurance at a fair price, his expected utility would be ___. while if he declines the insurance he would face an expected utility of а. 1,487.5; 1,531.8 b. 1,487.5; 1,444.9 с. 1,571.6;B 1,531.8 d. 1,571.6; 1,444.9