If a patient has a probability of being sick of 0.1 and a probability of being...
If a patient has a probability of being sick of 0.1 and a probability of being healthy of 0.9. If the person has a good health her wealth will be $100, if she has bad health her wealth will be $64. Suppose that the utility of wealth come from the following utility function: U(W)=W^0.5.
The expected utility of the patient if she has no insurance is
Homework Answers
Utility with bad health = 640.5 = 8
Utility with good health = 1000.5 = 10
Expected utility (no insurance) = Probability x Utility = 8 x 0.1 + 0.9 x 10 = 9.8
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