Indicate whether the statement is true, false, or unclear, and justify your answer.Ex post risk is typically much lower than ex ante risk because uncertainty is largely eliminated by the purchase of an insurance contract.
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Indicate whether the statement is true, false, or unclear, and justify your answer.
Ex post risk is typically much lower than ex ante risk because uncertainty is largely eliminated by the purchase of an insurance contract.
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- Indicate whether the statement is true or false, and justify your answer.A risk-averse individual prefers a certain outcome to an uncertain outcome with the same expected income.Indicate whether the statement is true or false, and justify your answer.Risk-averse consumers always prefer insurance that is actuarially fair but not full to full insurance that is actuarially unfair – but the opposite is true for risk-loving consumers.Indicate whether the statement is true, false, or unclear, and justify your answer.In some markets, adverse selection develops over time as customers learn about their own risk levels.
- Draw a graph with utility on the Y axis and income on the X axis for a risk averse person. Label the following points on the Y axis The expected value of utility while uninsured The expected value of utility with actuarially fair, full insurance The expected value of utility with actuarially far, partial insuranceIndicate whether the statement is true or false, and justify your answer.Risk-averse individuals have a concave value function for prospective gains and a convex value function for prospective losses.Suppose in a given state's new insurance marketplace, with community rating and no restrictions on who can buy at the community rate, the risk pool (distribution of expected health costs) is as follows: 30% of eligible enrollees' expected health costs = $1,000 (per year)65% of eligible enrollees' expected health costs = $2,0005% of eligible enrollees' expected health costs = $10,000 Now suppose one insurer, and one insurer only, were allowed to offer any premium it wanted to any potential buyer and to exclude those it did not want to cover? What premium would they likely charge and who would they sell to and who would they exclude? What would happen to the other insurers? Does this help you see why the ACA was written to apply to all insurers?
- Tess and Lex earn $40,000 per year and all earnings are spent on consumption (c). Tess and Lex both have the utility function c. Both could experience an adverse event that results in earnings of $0 per year. Tess has a 1% chance of experiencing an adverse event and Lex has a 12% chance of experiencing an adverse event. Tess and Lex are both aware of their risk of an adverse event. 1. Suppose the actuarially fair premium charge is 2600, Calculate Tess’ expected utility with full insurance if she is charged the premium. Round to two decimal places. 2. What is the premium that private insurance companies will charge for full insurance? Round to two decimal places. 3.Assume the social welfare function is the sum of the Tess’ and Lex’s utility functions. Select the correct statement regarding the explanation for what has happened in the private market and the role of social insurance. a.Adverse section has lead to market failure. The government could improve social welfare by…Indicate whether the statement is true or false, and justify your answer.A typical value function is concave due to risk aversion.Consider an individual whose utility function over income I is U(I), where U is increasing smoothly in I (U'>0) and convex (U">0).a. Draw a utility function in U–I space that fits this description.b. Explain the connection between U'' and risk aversion.c. True or false: this individual prefers no insurance to (IS, IH) to an actuarially fair, full contract.
- The transfer of Pure risk from one party to another best determines the idea of Proximate cause insurance insurable interest coinsuranceIndividuals will prefer to fully insure against a potential adverse event if A. individuals are risk-loving and insurance is priced at an actuarially fair rate. B. individuals are risk-averse and insurance is priced at an actuarially fair rate. C. individuals are risk-loving and insurance is priced above the actuarially fair rate. D. individuals are risk-averse and insurance is priced above the actuarially fair rate.Indicate whether the statement is true or false, and justify your answer.There are no possible utility functions in which a person is indifferent between actuarially fair, full insurance and actuarially fair, partial insurance.
