Suppose someone knew that the probability of incurring a $10,000 medical expense was 5% and the odds of being healthy and incurring no expenses was 95%. If they used that information to compare the expected cost to them ($500)with the $600 premium it would cost to get full coverage and decided to buy the insurance then economists would say they are

Question

Quizplus · Accepted Answer

Choosing to buy insurance despite the expected cost being lower than the premium cost indicates risk aversion, as the individual is willing to pay a higher cost to avoid the possible financial risk of the medical expense.

Suppose Someone Knew That the Probability of Incurring a $10,000