If fair insurance is offered to a risk-averse person,she will
A) buy enough insurance to eliminate all risk.
B) not buy any insurance because it is overpriced.
C) not buy any insurance since the marginal utility of the amount of the payment is positive.
D) buy enough insurance to cover about half of the possible loss.

Question

Quizplus · Accepted Answer

A risk-averse person prefers to eliminate uncertainty when possible, and fair insurance allows them to do so by covering potential losses, thus they will buy enough insurance to eliminate all risk.

If Fair Insurance Is Offered to a Risk-Averse Person,she Will