I need help gathering some ideas for a research paper I have to write. The topic is focused on the question, "When is the price too high?". (That means that the topic deals with risks)

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Consider the insurance industry. The way insurance works is like this: I pay a life insurance company $1,000 a year for 10 years. If I die in those ten years, my family gets $500,000. If I don't, nothing happens (except I'm out $10,000). The insurance company has studied the statistics of life and death very closely, of course. So they know with great precision that the probability of my dying in those ten years is much less than 1 out 50. Let's say it's 1 out of 100. So if they make this same deal with 100 customers, 99 will pay premiums for ten years and 1 will die and his family will collect $500,000. The insurance company will collect 99 x $10,000 = $990,000 in premiums and pay out $500,000, for a net profit of $490,000. Sweet! But here's the thing. Everyone KNOWS that the insurance company is charging you way more than the "fair" price of the insurance. (The fair price is the price that would end up with the insurance company not making any money. In this case, it would be $505.05 per year, not $1,000.) So why do people, nevertheless, still gladly buy insurance? It's clearly a psychological thing: people fear big surprise losses more than very predictable small losses, even when the latter add up to less than the former. Nor is that dumb: it's much easier to cope with predictable losses than surprise losses. So "price" in terms of risk can have a strong element of how predictable the risk is. And as a consequence some of the wealthiest companies around are insurance companies.

So, swimmergirl, have you hit upon a topic? The general question is so intriguing -- for don't we face this same issue repeatedly in our lives? -- I thought about it all afternoon yesterday.

:) sadly I have not thought of an idea.....well I guess I have thought about doing something about peer pressure in our teen population....

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