Sarah would be willing to pay up to 2 for this insurance. This is because the...

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Sarah would be willing to pay up to £2 for this insurance. This is because the expected loss is £1, and she is only willing to pay up to the amount of the expected loss. This shows that she is risk-averse, as she is not willing to take the chance of losing any more than she is already expecting to lose. Sarah's utility over outcomes/wealth is given by u(z) = 100 * z/(z + 1). The lottery is: win £100 with pro Sarah would be willing to pay up to £2 for this insurance. This is because the expected loss is £1, and she is only willing to pay up to the amount of the expected loss. This shows that she is risk-averse, as she is not willing to take the chance of losing any more than she is already expecting to lose. Sarah's utility over outcomes/wealth is given by u(z) = 100 * z/(z + 1). The lottery is: win £100 with pro

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The detailed answer for the above question is provided below bability 05 and lose 1 with probability ... View the full answer