Dr. Gambles has a utility function given as U(w)=In(w). Due to the pandemic affecting his consulting business, Dr Gambles faces the prospect of having his wealth reduced to £2 or £75,000 or £100,000 with probabilities of 0.15, 0.25, and 0.60, respectively. Suppose insurance is available that will protect his wealth from this risk. How much would he be willing to pay for such insurance?

Dr. Gambles has a utility function given as U(w)=In(w). Due to the pandemic affecting his consulting business, Dr Gambles faces the prospect of having his wealth reduced to £2 or £75,000 or £100,000 with probabilities of 0.15, 0.25, and 0.60, respectively. Suppose insurance is available that will protect his wealth from this risk. How much would he be willing to pay for such insurance?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.3P

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