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Business, 04.03.2020 00:30 lflwersl

Suppose that everyone has the same utility function and an annual income of $50000 but people face different risks to health. Person A has a 0.20 chance of experiencing a health shock that requires $400 in expenses while Person B has a 0.002 percent chance of experiencing a health shock that requires $40,000. Graphically illustrate that Person B would be willing to pay a greater risk premium for insurance that Person A although the expected loss is the same for both types of people. Explain your answer.

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