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Briefly (1 to 2 sentences) explain why the maximum price that the consumer is willing to...

Briefly (1 to 2 sentences) explain why the maximum price that the consumer is willing to pay for the insurance policy exceeds its expected value.

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Answer #1

The maximum price that the consumer is willing to pay for the insurance policy exceeds its expected value because no matter what the outcome is - bad or good, the insurance company will always deduct the price paid for the insurance. The insurance company charges a premium from the consumer on a monthly or yearly basis; In case of an accident the insurance company will pay for the damages and the premium amount will be deducted. And if no accident takes place, the consumer will get his/her money back but without any interest.

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