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28 Sep 2019
Let W represent an individual's annual earned income and U(W) = (W/10)^0.5 is this individual's Von Neumann-Morgenstern utility index (or utility function). This individual's earned income is $49,000. This individual faces the prospect of a 20% chance of needing healthcare with a price tag of $13,000. Assume this person is risk-averse. Also, assume that the health insurance company has only claim costs and that administrative costs are $0. What is the maximum health insurance premium that this individual is willing to pay?
Let W represent an individual's annual earned income and U(W) = (W/10)^0.5 is this individual's Von Neumann-Morgenstern utility index (or utility function). This individual's earned income is $49,000. This individual faces the prospect of a 20% chance of needing healthcare with a price tag of $13,000. Assume this person is risk-averse. Also, assume that the health insurance company has only claim costs and that administrative costs are $0. What is the maximum health insurance premium that this individual is willing to pay?
Joshua StredderLv10
28 Sep 2019
