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Each year, there is probability 0.01 that Mrs. Smith's house is burglarized, in which event the values of stolen objects are $15,000. Mrs. Smith decides to install a burglar alarm. The alarm costs her $200 annually. Let's assume, for simplicity, that the alarm in effect deters burglary perfectly (a burglar may still break in, but will be scared away by the alarm, and we'll also ignore the cost of repairing, say, a broken window). What can you conclude about Mrs. Smith' risk attitude? describe.

Microeconomics, Economics

  • Category:- Microeconomics
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