Question

Both Nadia and Samantha are applying to insure their car against theft. Nadia lives in a secure neighborhood, where the probability of theft is 10%. Samantha lives in a lesser secure neighborhood where the probability of theft is 25%. Both Nadia and Samantha own cars worth $10,000, and are willing to pay $100 over expected loss for insurance. ​ Suppose the insurance company cannot tell them apart but expects them to be different values and charges them an average premium of $1850. Who is more likely to buy this insurance? a. ​Samantha b. ​None of them c. ​Nadia d. ​Both of them

Answer 1

Answer:

a. Samantha

Explanation:

Samantha is likely to buy insurance because she lives in a lesser secure area than Nadia. She has higher probability of theft which is 25%. The probability of theft to Nadia's car is lower which is 10%. Samantha is likely to buy insurance for her car because her car cost $10,000 and she is already willing to pay $100 of expected loss for insurance. Buying insurance will secure Samantha from theft or likely loss of car.