What is the expected utility for the person

Reference no: EM133625964

Problem: Consider the utility function for a person, U(Y) = InY, where Y=$10,000. If there is a 25% chance that $1,000 will be lost. What is the expected utility for this person? Suppose the individual can buy insurance against losing the $1,000 at an actuarially fair premium of $250. Show that the expected utility is higher if the insurance is purchased than the case without insurance. What is the maximum amount that this individual would be willing to pay to insure the $1,000?

Reference no: EM133625964

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