Individual with wealth level w0 and VNM utility function u must decide whether and how much to insure his car. There is probability 0<a<1 of accident in amount of L dollars. Insurance is available at an actuarily fair price (each dollar of insurance costs p=a). How much insurance will individual buy?
Risk averse individual (concave VNM) will buy x=L dollars of insurance. That is clear. Risk neutral individual (linear VNM) will buy 0<x<L of insurance. But why will risk loving individual (convex VNM) buy x=0 dollars of insurance? I would need an analytical solution. Thanks. V.M. -- If you want to answer me, please remove the word NOSPAM from my e-mail address. . . ================================================================= Instructions for joining and leaving this list, remarks about the problem of INAPPROPRIATE MESSAGES, and archives are available at: . http://jse.stat.ncsu.edu/ . =================================================================
