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

See similar textbooks