a) 80% chance of having 810k Euro (no damage) and 20% change of having 640k Euro

(810k 170k, when the vase is damaged).

b) Expected monetary value of the lottery: EV= 0.8*810k + 0.2*640k = 776k

Risk measured by standard deviation of the monetary outcomes is s = 68k. What is the
interpretation of this number?

c) Expected utility of the lottery: EU(lottery) = 0.8* u(810k) + 0.2*u(640k) = 880 utils
(!)

Certainty equivalent (CE) of the lottery is the amount of money for sure that makes this
agent indifferent between the lottery and the money. Mathematically,
u(CE) = EU(lottery)
u(CE) = 880 --> CE = 774.4k Euro

d) Maximum insurance premium: initial endowment certainty equivalent. Thus, 810k

774.4k = 35.6k. The antique dealer in question would be willing to pay up to 35.6k Euro
for the full-coverage insurance.

e) How much would he be willing to pay for a 80%-coverage? Describe the approach!
(Max insurance premium = 28.7k Euro.)