Question 11 (22 points) [WRITTEN ANSWER REQUIRED) Suppose that Karen has initial wealth $10,000, but, before she consumes it, she is subject to the following medical risk (these events are mutually exclusive): Probability Required Medical Payment $200 $1000 $0 60% 10% 30% An insurance agent offers Karen the option to buy full insurance at a premium z. Define z* to be the maximum amount that Karen is willing to pay for this insurance. (a) Suppose Karen is an expected utility maximizer with utility function u(x) . Provide an equation that defines Karen's z*. (b) Suppose instead that Karen evaluates gambles according to prospect theory (as in Kahneman & Tversky 1979) with probability-weighting function (p) and value function v(x). Provide an equation that defines Karen's z*. (c) Suppose further that Karen has probability-weighting function (p) =p and value function v(x) = x for x > 0 and v(x) = \x for > 0 and v(x) = \x for >