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Calculating maximum insurance premium with uncertainty

Consider a von Neumann-Morgenstern individual whose utility function is logarithmic, i.e. u(w)=ln(w), where w is wealth. Given that the individual faces the prospect of gaining or losing an amount of wealth h with equal probability, determine the maximum insurance premium that the individual is prepared to pay.

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M927965

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