In Eugene, Oregon, Next Year There Is a 2% Chance

Multiple Choice

In Eugene, Oregon, next year there is a 2% chance of an earthquake severe enough to destroy all buildings and personal property. Quincy, who has $3,000,000 in buildings and personal property, has the opportunity to purchase complete earthquake insurance. Which is true?

A) Quincy should not purchase earthquake insurance unless he can get it for less than $60,000, because that's all he could possibly lose in an earthquake.
B) Quincy should not purchase earthquake insurance unless he can get it for less than $60,000, because that's his expected loss in an earthquake.
C) If Quincy buys earthquake insurance, and an earthquake does not occur, he will have received no utility from the transaction.
D) What Quincy is willing to pay for the earthquake insurance depends upon his degree of risk aversion.
E) Quincy should be willing and able to pay up to $3,000,000 for earthquake insurance.