What is the actuarially fair premium

Reference no: EM133614397

Problem: Always Sure is the only insurance company in the city. Herb is the only seller of AlwaysSure insurance products. He is desperately trying to meet his monthly sales quota. He only has time to make one more sales call. Jakob and Mohammad are the same age, live in the same street, and with identical family responsibilities. Both have a probability of robbery of 0.10. Both Jackob and Mohammad have a wealth of 900 if they are not robbed. In case of robbery, they will lose 500. They are only different in their utility functions. Their utility functions over wealth (X) are given by: Jakob: U(X) = 10X1/2 Mohammad: U(X) = 10X1/4. What is the "actuarially fair" premium? Who is more risk averse, Jakob or Mohammad? How do you know? Suppose both Jakobe and Mohammad are offered insurance at a price of $65. Will they be willing to buy insurance at this price? If either Jakob or Mohammad buy insurance, what is their consumer surplus?

Reference no: EM133614397

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