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    actuarilly fair premium

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    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

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    Solution Preview

    I think the Utility function should be U=10X^(1/3), which is concave - the consumer is risk-adverse.
    Two cases:
    if there's no disease, he has 64000, of which the utility is ...

    Solution Summary

    Actuarilly fair premium for full coverage for a treatment is examined.