I am stuck at a very simple problem:
Suppose, I am running out of insurance, and as a result, I am incurring a the cost of A with event 1 + the cost of B with event 2. Now, I go ahead and buy an insurance that will protect me from event 1, but will incur me a total cost of C. I will remain vulnerable to Event 2.
What is the total profit I am receiving from making the investment.
Logical calculation is, Prior total cost: A+B New total cost: B+C Total profit: (A+B)-(B+C) = A-C
But my mind is constantly pesking me with the total profit to be: A-B-C.
I am essentially doing cost-benefit analysis. Can someone please tell me where I am wrong?
I know my benefit function to be A, and not A-B. Please indicate what is wrong.