Question

There are only two states of the world, when a person is well with probability (1-p) and ill with probability p, where (1-p) = 1/3 and p = 2/3. Consider Adam who has utility function =(1,2,1―,)=1(1-p) 2p where Yi is the income i = 1 is well and i = 2 is ill. When Adam is well, he earns $1000, but when he is ill, he losses $300 in health expenditures and earnings such that Y2 = $700. What is the maximum total premium that Adam is still willing-to-pay?​

Answer 1

Answer:

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Explanation:

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