Helen just bought a house for $250,000. Earthquake insurance, which would pay $250,000 in the event of a major earthquake, is available for $25,000. Helen estimates that the probability of a major earthquake in the coming year is 10 percent, and that in the event of such a quake, the property would be worth nothing. The utility (U) that Helen gets from income (I) is given as follows: U(I) = (I/1000)2
Would Helen by insurance? Yes , No indifferent, or not enough information
What is the maximum she should pay?
$9,762.18, $12,829.18, $37,552.24, or $45,530.56