Illustrate the maxmium so and so would pay for insurance

Assignment Help Macroeconomics

Reference no: EM1331693

Expected Utility without insurance

We are going to have problems on the exam which give you a utility function for a person (U=2/I, or square root of I, etc), and their income with different probabilities. Like 40% chance of being fine and making $100 and 60% chance of getting hurt and paying $10 of it for medical bills or whatever. So the question will ask something like, what is the maxmium so and so would pay for insurance?

I know how to get the Expected Utility without insurance, I think. EU = pU(I not hurt) + (1-p) U(i if hurt). No problem. But it seems to me there are different ways to calculate how much one would be willing to spend to take away the risk, yet I always get different answers depending on how I do it.

Should I be making the max insurance cost = EU(no insurance) - U(insurance)? Or do I use the U(lost income * prob) ? An example worked out would be helpful!

Reference no: EM1331693

Questions Cloud

Incentives as an employee motivator : Incentives as an Employee Motivator - Incentives or "pay for performance" can be a powerful employee motivator. It can take a variety of forms of compensation and can be measured in multiple ways.

How to find the "smallest" and "largest" in a series of word : Write a program that finds the "Smallest" and "Largest" in a sequence of words. After user enter the words, the program will determine which words would come first and last if the words were listed in dictionary order.

A company decides to downsize one of their plants : A company decides to downsize one of their plants

Defining the digital audio recording : Research the United States Annotated (USCA) and locate the definition of a digital audio recording device under the copyright law.

Illustrate the maxmium so and so would pay for insurance : Illustrate the maxmium so and so would pay for insurance.

Experiences with measurement dysfunction : Explain any instances you have experienced or researched with measurement dysfunction. How could this dysfunction have been avoided or corrected?

Role of listening skills in cross-cultural communication : Describe the role and importance of listening skills in cross-cultural communication. How can these skills be learned or improved?

Make function that outputs the elements stored in the tree : Write down a program containing a function that outputs the elements stored in the tree (integers) to the screen. The integers have to be output level by level in the order they appear in the tree.

Find the reorder point and the inventory position : The information technology department of a university buys paper for its copier machine frequently. The office manager would like to determine the best quantity to order each time an order is placed.

User Account

All Pages