I think there is a typo in your introductory example:
Should I buy travel insurance for $10? I think there’s about a 1% chance I’ll use it (probability—blue), in which case it will get me a $500 airfare refund (value—red). Since 1% * values = $500, I should not buy it for $10.
“Values” should be $500 and “= $500″ should be “= $5”. (This is fixed in your appendix.)
I think there is a typo in your introductory example:
“Values” should be $500 and “= $500″ should be “= $5”. (This is fixed in your appendix.)
Fixed, thanks!