Ms Rich Has Just Bought a New $30,000 Car

question 25

Essay

Ms. Rich has just bought a new $30,000 car. As a reasonably safe driver, she believes that there is only a 5% chance of being in an accident in the forthcoming year. If she is involved in an accident, the damage to her new car depends on the severity of the accident. The probability distribution for the range of possible accidents and the corresponding damage amounts (in dollars) are shown in the table below. Ms. Rich is trying to decide whether she is willing to pay $170 each year for collision insurance with a $300 deductible. Note that with this type of insurance, she pays the first $300 in damages if she causes an accident, and the insurance company pays the remainder.
Distribution of Accident Types and Corresponding Damage Amounts
-Generate a statistical summary and risk profile for each of Mrs. Rich's possible decisions. Does this information impact her decision?

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Definitions:

80-Hour Weeks

Working weeks that consist of 80 hours of work, often indicating a high level of commitment or demand in a job or project.

Level of Commitment

The degree of dedication or loyalty an individual or group has towards a cause, activity, or organization.

Gross Domestic Product (GDP)

The total monetary value of all finished goods and services produced within a country's borders in a specific time period, serving as a broad measure of national economic activity.

Forced Out

The situation where an individual or entity is compelled to leave or exit a position or condition, often against their will.