A person who is risk neutral would never be interested in paying a premium for an insurance policy which would guarantee a constant income in lieu of a variable one with the same expected value.

Question

Quizplus · Accepted Answer

A risk neutral person is indifferent between taking on different risks as long as the expected value of each option is the same. Therefore, a risk neutral person would not be willing to pay a premium for an insurance policy that promises a constant income if the variable income has the same expected value. This is because the risk neutral person does not value the certainty of a constant income as much as someone who is risk averse.

A Person Who Is Risk Neutral Would Never Be Interested