(See Problem 2

question 1

Multiple Choice

(See Problem 2.) Willy's only source of wealth is his chocolate factory. He has the utility function , where p is the probability of a flood, 1 - p is the probability of no flood, and c_f and c_nf are his wealth contingent on a flood and on no flood, respectively. The probability of a flood is p = . The value of Willy's factory is $500,000 if there is no flood and 0 if there is a flood. Willy can buy insurance where if he buys $x worth of insurance, he must pay the insurance company $ whether there is a flood or not, but he gets back $x from the company if there is a flood. Willy should buy

• A) enough insurance so that if there is a flood, after he collects his insurance, his wealth will be the same whether there is a flood or not.
• B) enough insurance so that if there is a flood, after he collects his insurance, his wealth will beof what it would be if there is no flood.
• C) no insurance since the cost per dollar of insurance exceeds the probability of a flood.
• D) .enough insurance so that if there is a flood, after he collects his insurance, his wealth will beof what it would be if there is no flood.
• E) enough insurance so that if there is a flood, after he collects his insurance, his wealth will beof what it would be if there is no flood

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Definitions:

Flashbulb Memory

A clear memory of an emotionally significant moment or event.

Short-Term Memory

The ability to maintain a limited quantity of data in a state of immediate availability for a brief duration.

Karl Lashley

a prominent psychologist and behaviorist remembered for his contributions to the study of learning and memory.

Cerebral Hemisphere

One of the two halves of the brain, each governing distinct functions, with the left typically managing logic and language, and the right handling spatial abilities and creativity.