Minimum level of auto and motorcycle insurance

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Reference no: EM13798016

All licensed drivers are required by law to purchase a minimum level of auto and motorcycle insurance (well, if they own either of the two). However, the vast majority choose to buy much more insurance than the required minimum. It’s also true t hat millions of people each day purchase lottery tickets, which universally carry a negative expected value. Meet Kevin. Kevin has initial wealth of M0 = 1000 , and he buys both motorcycle insurance for his Harley Dyna Wide ? Glide AND $2 Powerball tickets. Draw a graphical representation of Kevin’s utility function (label his potential loss from a car accident as M L and his potential gain from the lottery ticket as Mh , and use expected value lines to show that his risk preferences regarding his bike and regarding his consumption of lottery tickets). I am asking for a single graphical utility function

Reference no: EM13798016

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