What is the actuarilly fair premium for full coverage for a treatment. Find the utility with full insurance for the treatment and how much would the individual be willing to pay to obtain such insurance than the fair premium (calculate the risk premium)?
Utility function is given by U=10(X1/3)
CUrrent income is 64000, 10% chance of contracting the disease, cost of treatment $32000
I think the Utility function should be U=10X^(1/3), which is concave - the consumer is risk-adverse.
if there's no disease, he has 64000, of which the utility is ...
Actuarilly fair premium for full coverage for a treatment is examined.