Question: Note: This question falls under Risk Analysis and Adverse Selection. Please show step-by-step as to how you solve the problem. Good drivers have a 10%

Note: This question falls under "Risk Analysis and Adverse Selection". Please

Note: This question falls under "Risk Analysis and Adverse Selection".

Please show step-by-step as to how you solve the problem.

Good drivers have a 10% chance, and bad drivers have a 30% chance, of getting into an accident. An average car is worth $20,000, and an accident would reduce its value by half. Both types of drivers have utility U = (car- value)0.5. What is a good driver's expected utility without insurance? E(U)

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