- Flightguard Insurance provides life insurance for commercial air flights. They offer a (“fair insurance”) bet where you are allowed to trade $23 in the good (“alive”) state where there is no plane crash for $200,000 in the bad (“not alive”) state where there is a crash. Let P be your probability of a bad state on a flight. Calculate the value for P for this bet to be fair insurance.
- Given the probability of a bad state on a flight is actually about one in 1.15 million flights, what should the premium be for fair insurance?
- Explain why or why not a rational consumer should purchase Flightguard’s insurance policy.
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