BJ is planning a skiing trip to Big Sky Montana. The utility from the trip is a function of how much she spends 
and is given by U = log y. BJ has $10,000 to spend on the trip. If she spends it all, her utility will be U(10,000) = log 10,000 = 4. (Note: we are using logarithms to base 10).
(a)If there is a 25% probability that BJ will lose $1,000 of her cash on the trip, what is the trip’s expected utility?
(b)Suppose BJ can buy insurance against losing the $1,000 at an actuarially fair premium of $250. Will BJ buy the insurance?
(c)What is the maximum amount that BJ would be willing to pay to insure her $1,000.
(d)Suppose that people who buy insurance tend to become more careless with their cash than those that don’t, and assume that the probability of their losing $1,000 is 30%. What will be the actuarially fair insurance premium? Will BJ buy insurance at the actuarially fair price?
and is given by U = log y. BJ has $10,000 to spend on the trip. If she spends it all, her utility will be U(10,000) = log 10,000 = 4. (Note: we are using logarithms to base 10).(a)If there is a 25% probability that BJ will lose $1,000 of her cash on the trip, what is the trip’s expected utility?
(b)Suppose BJ can buy insurance against losing the $1,000 at an actuarially fair premium of $250. Will BJ buy the insurance?
(c)What is the maximum amount that BJ would be willing to pay to insure her $1,000.
(d)Suppose that people who buy insurance tend to become more careless with their cash than those that don’t, and assume that the probability of their losing $1,000 is 30%. What will be the actuarially fair insurance premium? Will BJ buy insurance at the actuarially fair price?