Choice under uncertainty. Consider a coin-toss game in which the player gets $30 if they win, and $5 if they lose. The probability of winning is 50%. (a) Alan is (just) willing to pay $15 to play this game. What is Alan’s attitude to risk? Show your work. (b) Assume a market with many identical Alans, who are all forced to pay $15 to play this coin-toss game. An insurer offers an insurance policy to protect the Alans from the risk. What would be the fair (zero profit) premium on this policy? can you help me for par (b) plase?
Choice under uncertainty. Consider a coin-toss game in which the player gets $30 if they win, and $5 if they lose. The probability of winning is 50%. (a) Alan is (just) willing to pay $15 to play this game. What is Alan’s attitude to risk? Show your work. (b) Assume a market with many identical Alans, who are all forced to pay $15 to play this coin-toss game. An insurer offers an insurance policy to protect the Alans from the risk. What would be the fair (zero profit) premium on this policy? can you help me for par (b) plase?
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.4P
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Choice under uncertainty.
Consider a coin-toss game in which the player gets $30 if they win, and $5 if they lose. The
probability of winning is 50%.
(a) Alan is (just) willing to pay $15 to play this game. What is Alan’s attitude to
risk? Show your work.
(b) Assume a market with many identical Alans, who are all forced to pay $15 to
play this coin-toss game. An insurer offers an insurance policy to protect the
Alans from the risk. What would be the fair (zero profit) premium on this
policy? can you help me for par (b) plase?
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