Examine the effect of a small uninsurable fair risk on the insured’s expected utility. Show that the correlation between the risks is again crucial. Relate these results to the analysis of the value...

Examine the effect of a small uninsurable fair risk on the insured’s expected utility. Show that the correlation between the risks is again crucial. Relate these results to the analysis of the value of small risky prospects in the analysis of risk spreading in section 19D. [Hint: don’t forget the Envelope Theorem.]



May 26, 2022
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