# Probability Question Economics Question

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#1
Hi Guys

(i) Ricky is risk averse. Suppose she owns a house worth w which can get burned down (reducing its worth to 0) with probability z. Suppose Hena could buy insurance at a rate that is actuarially fair i.e. each unit of insurance costs z. Suppose she can but any amount between 0 and w worth of insurance. How much should she buy?
(ii) If Hena is risk neutral and the insurance per unit costs p > z per unit,
how much insurance would she buy?

Could anyone help? thanks
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5 years ago
#2
Hi there,

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