Use the data in Table 7.2 to compute the average utility that each participant gets from his or her income in the different situations under the following assumption about utility: with no pooling of risk, the utilities are either from obtaining $5000 or from obtaining zero. But, with risk pooling, there is also the possibility of getting the utility associated with an income of $2500. Suppose that the utility from getting a zero income is zero, the utility from $2500 is 50, and the utility from $5000 is 70.7.
(a) How much more utility will each individual get, on average, when sharing his or her income with their partner relative to when not sharing?
Table 7.2
