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Scenario: Health Costs
Alan is hoping for a healthy year,meaning that he would have zero health costs.Given his habits,there is a 40% chance that Alan will develop a health issue resulting in $50 000 in health costs.Assume these are the only two conditions that could exist for Alan in the coming year.
-(Scenario: Health Costs)Use Scenario: Health Costs.When Alan's probability of developing a health problem decreases,holding everything else constant,Alan's expected value of health care costs:
A) increases.
B) decreases.
C) stays constant.
D) increases,decreases,or stays constant.

Question

Quizplus · Accepted Answer

The expected value of health care costs is calculated by multiplying the probability of a health issue occurring by the associated cost and adding the product to the probability of no health issue occurring multiplied by zero cost. As the probability of developing a health problem decreases, the expected value of health care costs will decrease because there is a lower chance of incurring the $50,000 cost.

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