While the expected value is negative

Assignment Help Operation Management

Reference no: EM1382154

Robert Weed is considering purchasing life insurance. He must pay a $180 premium for a $100,000 life insurance policy. If he dies this year, his beneficiary will receive $100,000. If he does not die this year, the insurance company pays nothing and Robert must consider paying another premium next year. Based on actuarial tables, there is a 0.001 probability that Robert will die this year. If Robert wishes to maximize his Expected Value, he would not buy the policy if the Expected Value were negative for him. He has determined that the Expected Value is, indeed negative for him, but decides to purchase the insurance anyway. Why?

A) He believes that the actual likelihood of his death occurring in the next twelve months is really much greater than the actuarial estimate.

B) While the Expected Value is negative, the utility gained from purchasing the insurance is positive, and high.

C) Mr. Weed is not rational.

D) (a) or (c)

E) none of these

Reference no: EM1382154

Questions Cloud

Abc airlines has calculated the total costs : ABC Airlines has calculated the total costs (fixed and variable) for the passenger service flights between Los Angeles, California and Orlando, Florida.

The firm is opening its headquarters in chicago : The firm is opening its headquarters in Chicago and is considering three office locations, which differ in cost due to square footage and office equipment requirements

Security of debt-collateral and debtor defaults : When a debt is secured by property as collateral and the debtor defaults, the creditor may: A) take possession of the property and retain it in full satisfaction of the debt. B) take possession of the property and sell it. C) not take possession of t..

Population in hwe : A zoologist is investigating a population of squirrels whose coat color is controlled by a single gene whose two alleles (B 1 & B 2 ) are codominant.

While the expected value is negative : While the Expected Value is negative, the utility gained from purchasing the insurance is positive, and high.

Determine heterozygous at the flower color locus : In wild petunias, the allele for red flower color ( R ) is dominant over the allele for white flower color ( r ). We sample a population and find 225 plants have white flowers and seventy-five have red flowers.

Create analysis and design project by part of local business : Recognize part of local business or organization which you can use for analysis and design project. You must explain the scope of project.

American nuclear family : Although family forms have varied over historical and cultural lines, why is the image of the nuclear family so pervasive in American society?

Describe the 4ps of marketing in your organization : Describe the 4Ps of marketing in your organization? (Product/positioning, pricing, promotion, and placement) Prepare this assignment according to the APA guidelines

User Account

All Pages