Car rental insurance-risk analysis

Reference no: EM13100177

Suppose that a car rental agency offers insurance for a week that will cost $10 per day. A minor fender bender will cost $1,200 while a major accident might cost 10,000. Without insurance you will be personally liable for any damages. What should you do? Clearly there are two decision alternatives, take the insurance, or do not take the insurance. The uncertain consequences or events that might occur are that you would not be involved in an accident, that you would be involved in a fender bender, or that you would be involved in an accident.Assume that you researched insurance industry statistics and found out that the probability of major accidnets is .06 and that the probability of a fender bender is .15%. What is the expected value decision? Would you choose this? Why or Why not? What would be some alternative ways to evaluate risk?

Reference no: EM13100177

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