Question 10 Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk averse individual with the utility function u(w) = w0.5. His current wealth is $300 and with probability 1/2 he will incur a loss of D= $240, but with probability 1/2 he will incur no loss. Ann has the same utility u(w) = w0.5 and current wealth $300 as Peter, but a different probability of loss: she will incur a loss of D= $240 with probability 1/4, and no loss with probability 3/4. As we showed in lectures, in the separating equilibrium Peter is offered actuarially fair full insurance contract, so his wealth is equal to $180, whether loss happens or not. Ann will be offered an insurance contract with the amount of insurance (approximately) equal to 00 20 50 80 O 120 O 240
Question 10 Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk averse individual with the utility function u(w) = w0.5. His current wealth is $300 and with probability 1/2 he will incur a loss of D= $240, but with probability 1/2 he will incur no loss. Ann has the same utility u(w) = w0.5 and current wealth $300 as Peter, but a different probability of loss: she will incur a loss of D= $240 with probability 1/4, and no loss with probability 3/4. As we showed in lectures, in the separating equilibrium Peter is offered actuarially fair full insurance contract, so his wealth is equal to $180, whether loss happens or not. Ann will be offered an insurance contract with the amount of insurance (approximately) equal to 00 20 50 80 O 120 O 240
Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter4: Polynomial And Rational Functions
Section4.6: Variation
Problem 2E
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