Consider Ms Ayse who has an apartment in Istanbul. Ms Ayse thinks the probability of an earthquake in Istanbul next year is 0.3. In that case she would lose her apartment for sure which has value of 1000000TL right now, Suppose her utility function is u(x) = Vx. What is certainty equivalent of having an earthquake in Istanbul when Ms Ayse thinks her apartment (of course that would be terrible for anyone)? How much is she willing to pay for insuring her apartment?

Consider Ms Ayse who has an apartment in Istanbul. Ms Ayse thinks the probability of an earthquake in Istanbul next year is 0.3. In that case she would lose her apartment for sure which has value of 1000000TL right now, Suppose her utility function is u(x) = Vx. What is certainty equivalent of having an earthquake in Istanbul when Ms Ayse thinks her apartment (of course that would be terrible for anyone)? How much is she willing to pay for insuring her apartment?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.8P

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