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       #Post#: 15--------------------------------------------------
       Q1a
   DIR By: Julia.Wirtz
       Date: November 10, 2012, 9:04 am
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       I'm posting a question I got per email and my answer:
       Question:
       the demand for insurance, ・・・・, can
       be
       explicitly derived as ・・・・・
       I could understand the solution of this problem itself, but I
       couldn't
       derive this demand function.
       Maybe, we take log on both sides, and solve the maximum problem
       of logEu(y).
       But because u(y) is defined as minus, I could not take the logs.
       How can I solve this problem in general?
       Moreover, Is it common to consider the utility function to be
       minus?
       As the absolute value of utility is diminishing as y gets large,
       it
       does make sense. But I think it's more natural to use a plus
       utility
       function such as (1-e^-ay), which must be also CARA.
       Answer:
       A negative utility function might seem strange, but is not
       uncommon.
       You still try to maximize it. The utility number has no meaning
       in the
       cardinal sense, only in the ordinal sense, i.e. you can say that
       you
       prefer something that gives you higher utility.
       The expected utility is: EU = q u(y - px - l + x) + (1-q) u(y -
       px)
       = - q exp [-a (y - px - l + x)] - (1-q) exp [-a (y - px)]
       [exp (x) just stands for e^x]
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