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Suppose that a decision maker’s risk attitude toward monetary gains or losses x given by the...

Suppose that a decision maker’s risk attitude toward monetary gains or losses x given by the utility function U(x) = ln(x+100,000). That is, if she loses $1,000, x = -1000.

If there is a 10% chance that the decision maker’s car, valued at $25,000, will be totaled during the next year, what is the most that she would be willing to (approximately) pay next year for an insurance policy that completely covers the potential loss?

Please round all results (also intermediate results which you use for further calculations!) to 2 decimals.

Math   Statistics-And-Probability   
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