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QUESTION

Insurance Market: Anyone can purchase insurance for 1 point. If you are sick and become ill you and you have insurance, you will be compensated 3...

Insurance Market: Anyone can purchase insurance for 1 point. If you are sick and become ill you and you have insurance, you will be compensated 3 points. If you are healthy there is no benefit from insurance. You must pay the 1 point to purchase insurance even if you do not become ill.

Decision 1. You do not know your type. You can either be sick or healthy with a 50% chance of each. Each person chooses to either purchase insurance or not.

Decision 2. Here we will simulate the market if you did know if you are sick. To do this, you must make a choice for each type that you might be. You are either sick or healthy but you must make a choice in each case and only the choice which is your true type (which is randomly assigned as outlined below) is enforced. write your decision for the experiment with one decision for each type that you might be.

In summary, your discussion should look similar to the one below.

Decision 1: XXX

Decision 2: if sick YYY

                   If healthy ZZZ

Now, Where XXX, YYY, and ZZZ are your decisions to either buy or not buy insurance

Note:

Half of the class will be assigned as sick and half of the class will be assigned as healthy. Students will be randomly assigned a type - either Sick(S) or Healthy(H). For each decision you make below, you will either be randomly assigned as sick or healthy. The determination of who is sick and who is healthy is completely random (50% chance of each type) and is independent across the two decisions. If you are sick you face a 50% chance of becoming ill. If you become ill, you suffer a loss of 3 points in this assignment.

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