Risk aversion Hence,risk aversion drives demand for insurance We can model risk aversion through utility from income U(I) Utility increases with income:U'(1)>o Marginal utility for income is declining:U"(1)<o Bhattacharya,Hyde and Tu-HealthEconomicsBhattacharya, Hyde and Tu – Health Economics Risk aversion  Hence, risk aversion drives demand for insurance  We can model risk aversion through utility from income U(I)  Utility increases with income: U(I) > 0  Marginal utility for income is declining: U(I) < 0