Scenario: Health Costs Alan is hoping for a healthy year, meaning that he would have zero health costs.Given his habits, there is a 40% chance that Alan will develop a health issue that will result in $50,000 in health costs.Assume these are the only two conditions that could exist for Alan in the coming year.
(Scenario: Health Costs) Look at the scenario Health Costs.When Alan's probability of developing a health problem decreases, holding everything else constant, Alan's expected value of health care costs:
A)increases.
B)decreases.
C)stays constant.
D)increases, decreases, or stays constant.

Question

Quizplus · Accepted Answer

The expected value of health care costs is directly proportional to the probability of developing a health problem. Therefore, as the probability decreases, the expected value of health care costs decreases.

Scenario: Health Costs Alan Is Hoping for a Healthy Year