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1 . Solve Problem and Applications : ch11- prob 8 , in your textbook .
11-8 : Suppose that a car rental agency offers insurance for a week that will cost $ 10 per day . A minor fender bender will cost $ 1,500 , while a major accident might cost $ 15,000 in repairs . Without the insurance , you would be personally liable for any damages . What should you do ? Clearly , there are two decision alternatives : take the insurance or do not take the insurance .
The uncertain consequences , or events that might occur , are that you would not be involved in an accident , that you would be involved in a fender bender , or that you would be involved in a major accident . Assume that you researched insurance industry statistics and found out that the probability of major accident is 0.05 %, and that the probability of a fender bender is 0.16 %.
What is the expected value to take insurance ?
2 . Solve Problem and Applications : ch11- prob 8 , in your textbook .
11-8 : Suppose that a car rental agency offers insurance for a week that will cost $ 10 per day . A minor fender bender will cost $ 1,500 , while a major accident might cost $ 15,000 in repairs . Without the insurance , you would be personally liable for any damages . What should you do ? Clearly , there are two decision alternatives : take the insurance or do not take the insurance .