Uncertainty and Insurance 3) There are 3 agents, one risk averse, another risk neutral, and...
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Uncertainty and Insurance 3) There are 3 agents, one risk averse, another risk neutral, and the third is risk preferring. They each have $9 in wealth and face a 5/9 probability of losing all $9 of their wealth. Their utility functions are: Risk Averse Agent: U(W) = 5JW = 5 W2 --- = Risk Neutral Agent: U(W)=(2xW)+3 3 Risk Preferring Agent: U(W) = 2 W 2 For each agent, compute their expected utilities under the risky situation and if they purchased actuarially fair insurance. Decide whether they would prefer to buy the insurance, be indifferent, or prefer the risky situation to being insured
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