Question

# Stephan has the utility function U(w) = 3, where w is his wealth. Initially, Stephan has w = $100. Would Stephan

pay $5 to take the following gamble: With probability 0.03 he wins $25; otherwise, he wins nothing. Explain why insurance companies usually do not offer earthquake insurance.

Economics

Stephan has the utility function U(w) = 3 where w is his wealth Initially Stephan has w = $100 Would Stephan