Suppose that an insurance policy costs 4% of an assets value while the true probability of a
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Question:
- Suppose that an insurance policy costs 4% of an asset’s value while the true probability of a total loss is 3%.
- What does this say about the risk preferences of policy holders (i.e., of folks who purchase the policy)?
- Suppose that a potential policy holder is only willing to pay a premium if it is 3%. What does this say about their risk preference?
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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