0 4. Wilbur is an airline pilot who currently has income of $120,000. If he gets sick and loses his flight medical certi

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0 4 Wilbur Is An Airline Pilot Who Currently Has Income Of 120 000 If He Gets Sick And Loses His Flight Medical Certi 1 (45.94 KiB) Viewed 27 times

0 4. Wilbur is an airline pilot who currently has income of $120,000. If he gets sick and loses his flight medical certificate, he loses his job and has only $40,000 income. His probability of staying healthy is 60% and his probability of getting sick is 40%. Wilbur's utility function is given in the table below. (15 points) Income Total Utility (utils) $0 $40,000 60 $60,000 110 $75.000 150 $88,000 180 $105,000 $120,000 a. What is the expected value of Wilbur's income? b. What is Wilbur's expected utility? Wilbur thinks about buying "loss of license" insurance what will compensate him if he loses his flight medical certificate. 200 210 c. One insurance company offers Wilbur full compensation for his income loss (that is, the insurance company pays Wilbur $80,000 if he loses his flight medical certificate), and it charges a premium of $32,000. That is, regardless of whether he loses his flight medical certificate, Wilbur's income after insurance will be $88,000. What is Wilbur's utility? Will he buy the insurance? d. What is the highest premium Wilbur would just be willing to pay for full insurance (insurance that completely compensates him for his income loss)?