Isnt it correct that the Risk Premium is defined as: Expected Value (no Insurance)- w* (=Certainty Equivalent? So we need to calculate 900-810= 90.000 as the Risk Premium and maximum willingness to pay? I didn't get it quite why we take in your calculation 1million as this is never a solution neither in Expected Value or in Expected Utility. Thanks
Hi 1sportingclays just wondering if you can make a video on insurance on gravelle and rees book microeconomics P.508. I have read and read many many times and still dont quite understand what it says. Much appreciated!
so 1 million - 810,000 stands for the max amount he's willing to pay, but what is the meaning of 900000-8100000? is that the fair insurance price or insurance premium ? thank you for answering!
By the way... is w* the certainty equivalent wealth? So if we have E(W) take out certainty equivalent wealth(W*) we will then have a risk premium which is the willingness to pay in your case right? And as long as the insurance policy less than the amount of willingness to pay, he will buy it.
Yes, w* is the certainty equivalent. The risk premium is expected wealth minus the certainty equivalent, as you correctly stated. The risk premium can be thought of as the maximum amount of money that a risk averse person is willing to pay in excess of an actuarially fair insurance premium. Unfortunately, many books are not clear about this point.
Greetings from Germany, you made my day!!!! I couldn't solve a problem unless i whatched your video! Thank you so much!!!
I agree this video completely helped me solve my problem, I couldn't have done it without this video!! Nothing else has worked, thank you!!
Thank you so much sir for this explanation 🙏.... Greetings from India
Thanks for the very clear and concise video!
I thank you, my public finance homework thanks you, and my GPA thanks you.
Great explanation. Thank you so much!
thanks alot mate, my books are a mess, you are a life saver
You're the best! Many thanks :)
Isnt it correct that the Risk Premium is defined as: Expected Value (no Insurance)- w* (=Certainty Equivalent? So we need to calculate 900-810= 90.000 as the Risk Premium and maximum willingness to pay? I didn't get it quite why we take in your calculation 1million as this is never a solution neither in Expected Value or in Expected Utility. Thanks
i think you are correct
Thank you for great video!
I found it so useful.
Hi 1sportingclays just wondering if you can make a video on insurance on gravelle and rees book microeconomics P.508. I have read and read many many times and still dont quite understand what it says. Much appreciated!
thanks! help me a lot to prepare for exam :)
Thank you for your time and wisdom
so 1 million - 810,000 stands for the max amount he's willing to pay, but what is the meaning of 900000-8100000? is that the fair insurance price or insurance premium ? thank you for answering!
Perfect, Thank You
hey sir! can you make more videoss about expected utility & risk aversion?
What about partial insurance, so a deductible of only half the full coverage? What would that look like?
thank you
thanks man :)
By the way... is w* the certainty equivalent wealth? So if we have E(W) take out certainty equivalent wealth(W*) we will then have a risk premium which is the willingness to pay in your case right? And as long as the insurance policy less than the amount of willingness to pay, he will buy it.
Yes, w* is the certainty equivalent. The risk premium is expected wealth minus the certainty equivalent, as you correctly stated. The risk premium can be thought of as the maximum amount of money that a risk averse person is willing to pay in excess of an actuarially fair insurance premium. Unfortunately, many books are not clear about this point.
@@EconomicsinManyLessons but then your calculation is wrong! Expected Wealth is = 900.000!
lovely
this is a long shot, but can you help me solve 2 problems,
Is is the same as binomial
Thanks !
Dear Sir, Would you like to help me in microeconomics problems? I can not afford to have any couching. I request you. please.
খুব ভালো
The Expected utility E(U) should be $9,000 not $900
no one else noticing this man😭
Risk premium should be 900000-810000=90000