00:07
So we're looking to find the maximum amount that an individual is willing to pay for full insurance coverage.
00:14
So without insurance, the individual's wealth after the potential losses would be £40 ,000 subtracting £17 ,500.
00:22
So without insurance, we've got £22 ,500.
00:29
So we can calculate the utility without insurance, which is our utility function.
00:38
So with insurance, if the individual purchases full insurance coverage, they will be protected from the potential loss of £17 ,500.
01:02
So therefore their wealth after the premium payment will be £40 ,000 subtract the insurance premium.
01:09
So we can calculate the utility with insurance, where ip is just the insurance premium.
01:33
It's equal to 21 multiplied by 40 ,000...