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Topic: Example 2.7 (pages 111-112)
Conf: Chapter 2, Topics in Consumer Theory, Msg: 13624
From: Martin Caley (martin.caley@economics.treasury.gov.im)
Date: 11/7/2003 09:56 AM
Example 2.7 (pages 111-112) Martin Caley MCaley martin.caley@economics.treasury.gov.im
For x in [0,L), w0-ax-L+x < w0-ax so dU/dx = a(1-a)[u'(w0-ax-L+x)-u'(w0-ax)] < 0 as u' is strictly increasing since u'' > 0 for a risk loving individual. So U is maximized when x = 0. Risk lovers do not bother with insurance!