Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person's health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person?
Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person's health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter16: Information, Risk, And Insurance
Section: Chapter Questions
Problem 1SCQ: For each of the following purchases, say whether you would expect the dogma of imperfect information...
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Transcribed Image Text:Reconsider the previous health insurance question. Of the choices below, which one
is closest to the spread between the minimum possible number of reports and the
maximum possible reports to achieve the company's desired outcome?
Transcribed Image Text:Suppose an insurance company wants to charge a very healthy individual a premium
of $1,200 a year for health coverage. It also wants to charge a less healthy individual
a premium of $3,600 a year for health coverage. It is seeking to ascertain from any
given customer information regarding his/her health by asking for several pieces of
health-related information, such as doctor assessments of the person's health,
history of health-related problems, etc. The opportunity cost of a very healthy
person securing a health report is $250 and the opportunity cost of a less healthy
person securing a health report is $650. Of the choices below, how many reports
should the company request to best ensure its paying the right premium to the right
person?
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