Pirates have been intensely attacking ships off the shore of Somalia this year. Boat owners have reportedly coughed up more than $30 million in ransom and insurance premiums have shot up. The pirate activity means that the expected utility of wealth of risk averse boat owners who do not have insurance and sail near Somalia is ________.
A) increasing
B) decreasing
C) staying the same
D) not able to be determined without knowing the extent of risk aversion

Question

Quizplus · Accepted Answer

The pirate activity increases the perceived risk of sailing near Somalia, which decreases the expected utility of wealth for risk-averse boat owners who do not have insurance.

Pirates Have Been Intensely Attacking Ships Off the Shore of Somalia