題組內容

2. A consumer that conforms to the von Neumann-Morgenstern axioms and has an initial wealth of 250,000 dollars is subject to a fire risk. He is faced with a 5% probability of a minor fire with a loss of 90,000 dollars and 5% probability of a major fire with a loss of 160,000 dollars. Note that his utility function is U = W0.5 and he is considering an insurance policy with the deductibility provision that he bear the first 10,000 dollars of any fire loss.


(1) What is the expected utility from no insurance? (10%)