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    utility function

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    Consider a risk averse agent. He faces a health risk of D(he/she has to go to the hospital and pay D, and he/she will be fine) with probability k. He/she can buy insurance at price q (that is he/she can buy at cost q a contract that pays 1 dollar if he/she has to go to the hospital). How many units of the contract will the agent buy if the price is q=k?

    © BrainMass Inc. brainmass.com February 24, 2021, 2:33 pm ad1c9bdddf
    https://brainmass.com/economics/utility/summarize-risk-aversion-28114

    Solution Preview

    If she buys n units of insurance, the utility is
    Ui = U(n*1 - nq -D)*k + U(-nq)*(1-k) = ...

    Solution Summary

    The solution applies utility function and summarizes risk aversion.

    $2.19

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