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Suppose a risk-lover has an initial wealth of $6,000 and a utility function U(M) = M^2...

Suppose a risk-lover has an initial wealth of $6,000 and a utility function U(M) = M^2 . He faces a 70 percent chance of losing $5000, and a 30 percent chance of losing $3000.

What is the most a consumer would pay for insurance against these losses? Is the premium bigger than or smaller than the expected loss?

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