Proving von Neumann-Morgenstern's Utility Model by Homework Help Classof1

Proving von Neumann-Morgenstern's Utility Model

byHomework Help Classof1

Kobo ebook | July 10, 2013

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In a state of nature 1 the individual has income w, whereas in the state of nature 2 the individual’s income is y >. The probabilities that these states will occur are (1-p) and p, respectively. The individual can purchase insurance before the state of nature is known; an increase in income of s in state 2 can be purchased by a reduction in income of (pi sign) s in state 1. Prove that a risk-averse von Neumann-Morgenstern individual will over-insure, fully insure, or under insure according as the insurance is available at a price (pi sign) lower than, equal to, or higher than the actuarially fair price. 

Title:Proving von Neumann-Morgenstern's Utility ModelFormat:Kobo ebookPublished:July 10, 2013Publisher:Classof1Language:English

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