-The Above Figure Shows the Utility of Wealth Curve for a Homeowner

question 229

Multiple Choice

-The above figure shows the utility of wealth curve for a homeowner whose only possession is a $50,000 house. If there is a 20 percent chance that the home could be entirely destroyed, would this person buy a $20,000 insurance policy to replace the house if destroyed?

• A) No, it is too expensive.
• B) No, he is not risk averse.
• C) Yes, the homeowner would pay even more.
• D) Yes, this is the most the homeowner would pay.

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Definitions:

Anxiety Disorders

A group of mental health disorders characterized by excessive fear, anxiety, apprehension, and worry that is difficult to control, causing significant distress or impairment in social, occupational, or other important areas of functioning.

Generalized Anxiety Disorder

A mental health disorder characterized by pervasive and exaggerated worry about multiple aspects of life, beyond what is warranted by the situation.

Cognitive-behavioral Explanation

An approach that combines cognitive and behavioral techniques to treat psychological disorders, emphasizing the role of thoughts and behaviors in the development and maintenance of problems.

Panic Attack

A sudden episode of intense fear or anxiety and physical symptoms, based on a perceived threat rather than imminent danger.