Economics Homework Solutions
#181586
Risk, uncertainty and information
1- An agent, with wealth 50, faces a probability 0.2 of a loss 35. The agent is offered insurance at a premium rate of 0.25. The agent has the von Neumann-Morgenstern utility function, u=lnx, where x is wealth. How much insurance should the agent buy?
2 - Show that a risk averse agent offered terms worse than actuarially fair will not choose to insure fully?
Shows mathematically and in simple English how a risk averse decision maker will take a decision to insure.
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Rohtas Kumar, MBA - 4.9/5
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- Insurance - Risk averse insurer and partial cover.doc
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