Pirates have been intensely attacking ships off the shore of Somalia this year. Boat owners have reportedly coughed up more than $30 million in ransom and insurance premiums have shot up. The pirate activity means that the expected utility of wealth of risk averse boat owners who do NOT have insurance and sail near Somalia is
A) increasing.
B) decreasing.
C) staying the same.
D) not able to be determined without knowing the extent of risk aversion.

Question

Quizplus · Accepted Answer

The expected utility of wealth for risk-averse boat owners without insurance decreases because the increased risk of pirate attacks reduces their expected wealth and utility.

Pirates Have Been Intensely Attacking Ships Off the Shore of Somalia