Recognizing the risk of being sued, Modus is considering buying insurance to guard against the financial consequences of a potential lawsuit. The company’s best estimate is that there is a 1.5% chance of a serious failure of one of their test-kits, resulting in a lawsuit, over the next year. Andre Serrano estimates that in the case of such a serious failure a court is almost certain to find in favour of the patient, and—on average—to award the patient damages of about $1.25 million.
Option A: What is the expected value of taking this risk, and not buying insurance at all for the coming year? (Show your math.)
Expected Value of taking risk = (Probability Kit will be Success) * (Amount Given for insurance) + (Probability Kit Will be Failure) * Amount Given to Patient
= (98.5% * 0) + (1.5% * 1.25 Million)
= 0 + 18750 = $ 18750
So, this is the expected value of taking the risk and not buying insurance at all.
Recognizing the risk of being sued, Modus is considering buying insurance to guard against the financial...
Recognizing the risk of being sued, Modus is considering buying insurance to guard against the financial consequences of a potential lawsuit. The company’s best estimate is that there is a 1.5% chance of a serious failure of one of their test-kits, resulting in a lawsuit, over the next year. Andre Serrano estimates that in the case of such a serious failure a court is almost certain to find in favour of the patient, and—on average—to award the patient damages of...
Please read the article and answer about questions. You and the Law Business and law are inseparable. For B-Money, the two predictably merged when he was negotiat- ing a deal for his tracks. At other times, the merger is unpredictable, like when your business faces an unexpected auto accident, product recall, or government regulation change. In either type of situation, when business owners know the law, they can better protect themselves and sometimes even avoid the problems completely. This chapter...