If people (Prefer, Do Not Prefer) to pay the expected cost of healthcare with ce

Question

If people (Prefer, Do Not Prefer) to pay the expected cost of healthcare with certainty, rather than take on the 4% risk of having to pay the full cost of the treatment, they are risk averse.

1. The value of insurance Suppose you face a choice between a certain income of $3,000, or a 50-50 chance of income of $1,500 or $4,500. Suppose you prefer the certairn $3,000 True or False: You are risk averse. O True False Suppose that a disease affects 4% of the population and that everyone is equally likely to get the disease. Treatment for this disease costs $40,000. Assume that this disease, and necessary treatment, represent the only healthcare costs in this population The expected cost of healthcare is S take on the 4% risk of having to pay the full cost of the treatment, they are risk averse . If people to pay the expected cost of health care with certainty, rather than

Explanation / Answer

Correct Answer:

True

Since I prefer to go with the certainty, rather going with the risk of higher income, then it shows my risk averseness.

Expected cost of healthcare = 4%*40000 + (1-4%)*0 = $1600

Prefer

Here, people pay the expected cost as premium, so that they are covered. It shows the risk averseness of the person.

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