Given the new job in (b), would Emma be willing to buy insurance to protect against the variable income associated with the new job? If so, how much would she be willing to pay for that insurance?
Suppose Emma is currently earning an income of €40,000 (𝐼 = 40). This is the only source of income. She can earn the same amount next year with certainty. She has the chance to take a new job that offers a 0.6 probability of earning €44,000 (𝐼 = 44) and a 0.4 probability of […]