A three-month safari to the Okavango Delta in Botswana is estimated to cost Amy €10 000. The utility from the safari is a function of how much she actually spends on it (Y), given by U(Y)=lnY. a. If there is a 25 per cent probability that Amy will lose €1000 of her cash on the safari, what is the safari’s expected utility?b. Suppose that Amy can buy insurance against losing the €1000 (say, by purchasing traveller’s cheques) at an ‘actuarially fair’ premium of €250. Show that her expected utility is higher if she purchases this insurance than if she faces the chance of losing the €1000 without insurance.c. What is the maximum amount that Amy would be willing to pay to insure her €1000?
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