Why do people often want to insure fully against uncertain situations even when

Question

Why do people often want to insure fully against uncertain situations even when the premium paid exceeds the expected value of the loss being insure against? O A. Assuming the consumers objective is to maximize expected utility, only if they are extremely risk averse is it rational for them to pay a higher OB. Assuming risk-averse individuals, the decrease in utility from a loss is greater than the increase in utility from a gain because of increasing O C. Assuming the consumers objective is to maximize expected utility, one must conclude that people are not always rational premium to avoid a loss marginal utility OD. Assuming risk-averse individuals, the decrease in utility from a loss is greater than the increase in utility from a gain because of diminishing marginal utility

Explanation / Answer

Answer : Option B is correct. As risk averse individual have declining marginal utility. These types of individuals are not able to bear risk so they are ready to give more value of money in form of insurance to cover its loss.Risk averse individual are not able to cover their risk.So it is better off for them to pay more value for there loss as there expected utility has been declined.l

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