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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 resulting 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

When the probability of developing a health problem decreases, the expected value of health care costs decreases because the expected value is calculated as the probability of the event occurring multiplied by the cost associated with that event.

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