When deciding whether or not to buy a product warranty, we can use something called the expected value. For instance, if there’s a 10% probability that a $1500 laptop will break, we say the warranty has an expected value of 0.1($1500) = $150. If the warranty costs less than this, we should buy it. If it costs more, we shouldn’t.
But we can use expected value for more than computers. Imagine a country with four people, where the only medical procedure is a $40,000 heart surgery
. Calculate the expected value of health insurance for each person. Then, who do you think wants insurance the most, and whom does the insurance company want the most?