A person has an expected utility function of the form U(W) = W .
He owns a house worth $ 500,000. There is a 50% chance that the
house will be burned down. Then, he will become literally penniless
. Luckily, however, there are insurance companies which make up for
losses from house fire. Currently, they charge $q for $1
compensation (in cases of fire). In other words, the home owner
should pay $qK for K units of fire insurance...