Social Insurance - PAM2040 SocialInsurance SocialInsurance Peopledontlikerisk SocialSecurity(SSI (UI DisabilityInsurance(DI WorkersCompensation

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PAM 2040 Social Insurance
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Social Insurance People don’t like risk Social Security (SSI) Unemployment Insurance (UI) Disability Insurance (DI) Worker’s Compensation Medicare / Medicaid
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Insurance: The Math Suppose two states of the world:   I am sick (miss work, earn $0)  I am healthy (go to work, earn $100) U = √y There is a 60% chance I will be healthy  What is the probability that I am sick?  
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Insurance: The Math What is my  expected utility? My utility in any given period x the probability of either  state of the world EU= 0.6*(√100) + 0.4*(√ 0) = 6 Can I possible make myself any better off? What if I buy an insurance policy which pays me $100  if I am sick
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How much will $100 of insurance cost? Expect to pay $100 40% of the time,
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This document was uploaded on 10/26/2011 for the course PAM 2040 at Cornell University (Engineering School).

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Social Insurance - PAM2040 SocialInsurance SocialInsurance Peopledontlikerisk SocialSecurity(SSI (UI DisabilityInsurance(DI WorkersCompensation

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