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Insurance Mario has purchased a new kart and would like to get some insurance on it The kart is worth $100 and there is a 10% chance he will be in an accident

Insurance Mario has purchased a new kart, and would like to get some insurance on it. The kart is worth $1,000, and there is a 10% chance he will be in an accident and do $500 worth of damage to his kart. Mario's utility function is U(V) = ln(V), where V is the value of his kart. a) Calculate Mario's expected utility with no insurance. b) Now suppose Mario can buy auto insurance from Yoshi for a premium of $I that will completely compensate him for his $500 loss if it occurs. Find an expression Mario's expected utility with insurance. c) What is the most Mario is willing to pay for insurance? d) Repeat steps a) - c) with a utility function of U(V) = V. Comment on why any differences are present in willingness to pay for insurance.

Apr 17 2020 Read more Less More

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