22 Develop the relationship between an individuals risk preference and their willingness to insure a given risk, where the indierence equation is uW0 P EuW0 X with P as the insurance premium and X the risk insured against In other words, how is the resulting relationship between P and EX determined by u00x (Hint Use Jensens inequality )

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Question: 22. Develop the relationship between an individuals risk preference and their willingness to insure a given risk, where the indierence equation is uW0 P

22. Develop the relationship between an individual’s risk preference and their willingness to insure a given risk, where the indi¤erence equation is uðW0 PÞ ¼ E½uðW0 XÞ;
with P as the insurance premium and X the risk insured against. In other words, how is the resulting relationship between P and E½X determined by u00ðxÞ? (Hint: Use Jensen’s inequality.)

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