Probability Question Economics QuestionWatch
(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
While you're waiting for an answer, did you know we have 300,000 study resources that could answer your question in TSR's Learn together section?
We have everything from Teacher Marked Essays to Mindmaps and Quizzes to help you with your work. Take a look around.
If you're stuck on how to get started, try creating some resources. It's free to do and can help breakdown tough topics into manageable chunks. Get creating now.
Not sure what all of this is about? Head here to find out more.