Indicate whether the statement is true, false, or unclear, and justify your answer.The fact that high-risk customers are usually less risk-averse than low-risk customers helps counteract adverse selection.
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Indicate whether the statement is true, false, or unclear, and justify your answer.
The fact that high-risk customers are usually less risk-averse than low-risk customers helps counteract adverse selection.
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- 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.Indicate whether each statement is true or false, and justify your answer.Insurance mandates do little to combat the problem of adverse selection.Indicate whether the statement is true or false, and justify your answer.Private markets are powerless to combat adverse selection, so the only solution is a government-mandated insurance contract.
- Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.Indicate whether the statement is true or false, and justify your answer.Even though it is illegal for sickness funds to deny coverage to individuals, insurers still often engage in risk selection.Provide an intuitive discussion of how adverse selection affects the used-car market. Describe one potential signal that can help alleviate the problem of adverse selection in this market and discuss how this signal satisfies the two necessary assumptions for it to be used as a credible signal.
- Indicate whether the statement is true, false, or unclear, and justify your answer.If a health insurance company could somehow monitor everything a customer does and thinks, it could create a full-insurance contract with no moral hazard.Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.Indicate 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.
- Indicate whether the statement is true or false, and justify your answer.In an actuarially fair insurance contract, the insurance premium equals the probability of sickness times the payout amount.In the mid-1990s, the state of New Jersey revised its rules for the individual insurance market and began requiring that insurers charge the same premiums for the same coverage to all applicants. Assuming that insurers had previously used medical underwriting, which of the following is a predictable consequence of adverse selection? 1) Insurance becomes less attractive to the healthiest individuals, so fewer of them buy it 2) Insurers’ average costs of providing coverage increase because of a changing risk pool 3) The average age of those buying in the individual market goes up 4) All of the aboveDistinguish the difference between adverse selection and moral hazard.