The difference between the value of one action and the value of the best alternative is called moral hazard. Group of answer choices True False
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The difference between the value of one action and the value of the best alternative is called moral hazard.
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- In economic terms, moral hazard is the negative relationship between the out-of-pocket price of the physician visit and the quantity of the physician visits demanded in a given time period. a.True b.FalseAdverse selection in insurance business means that those__________ likely to get _________insurance benefits want to purchase insurance the most. Group of answer choices most; large least; small least; large most; small not; anyThe difference between moral hazard and adverse selection is a. moral hazard has to do with unobservable characteristics of individuals b. moral hazard has to do with unobservable actions of individuals c. adverse selection is when individuals change their behaviors because of a contract d. adverse selection is when you choose the wrong answer on a test
- Indicate whether the statement is true, false, or unclear, and justify your answer.Moral hazard is mostly a problem in countries with universal insurance programs like the UK.Define the difference between moral hazard and adverse selection using an example. .Consider the following steps Celia chooses how much care, x ∈ [0,1], to take in programming her robot. This effort costs her x^2/2. Nature chooses whether the robot steps on Peter’s pet salamander, leading to emotional harm to Peter of H > 0 (with probability 1 - x). If the robot does step on the salamander then there is a chance of π that Celia will be identified as the culprit. If there is no accident (the salamander is not stepped on), then Celia’s payoff is V - x^2/2. Peter and Luke both get zero. If there is an accident, but Celia is identified as the culprit, then Celia gets V - x^2/2. Peter gets -H. Luke gets zero. If there is an accident, and Celia is identified as the culprit, then Like (the judge) decides a level of compensation D ∈ R+ for Celia to pay Peter. Celia gets V - x^2/2 - D. Peter gets D - H. Luke gets −(βH - D)^2. f) Now we turn to social otimality rather than equilibrium. Consider the value judgement that the optimal level of care is…
- Consider the following steps Celia chooses how much care, x ∈ [0,1], to take in programming her robot. This effort costs her x^2/2. Nature chooses whether the robot steps on Peter’s pet salamander, leading to emotional harm to Peter of H > 0 (with probability 1 - x). If the robot does step on the salamander then there is a chance of π that Celia will be identified as the culprit. If there is no accident (the salamander is not stepped on), then Celia’s payoff is V - x^2/2. Peter and Luke both get zero. If there is an accident, but Celia is identified as the culprit, then Celia gets V - x^2/2. Peter gets -H. Luke gets zero. If there is an accident, and Celia is identified as the culprit, then Like (the judge) decides a level of compensation D ∈ R+ for Celia to pay Peter. Celia gets V - x^2/2 - D. Peter gets D - H. Luke gets −(βH - D)^2. A) Draw a game tree to represent this model.Consider the following steps Celia chooses how much care, x ∈ [0,1], to take in programming her robot. This effort costs her x^2/2. Nature chooses whether the robot steps on Peter’s pet salamander, leading to emotional harm to Peter of H > 0 (with probability 1 - x). If the robot does step on the salamander then there is a chance of π that Celia will be identified as the culprit. If there is no accident (the salamander is not stepped on), then Celia’s payoff is V - x^2/2. Peter and Luke both get zero. If there is an accident, but Celia is identified as the culprit, then Celia gets V - x^2/2. Peter gets -H. Luke gets zero. If there is an accident, and Celia is identified as the culprit, then Like (the judge) decides a level of compensation D ∈ R+ for Celia to pay Peter. Celia gets V - x^2/2 - D. Peter gets D - H. Luke gets −(βH - D)^2. h) What would β have to equal, in order for Celia to choose the socially optimal level of x in a Subgame Perfect Equilibrium ?…Consider the following steps Celia chooses how much care, x ∈ [0,1], to take in programming her robot. This effort costs her x^2/2. Nature chooses whether the robot steps on Peter’s pet salamander, leading to emotional harm to Peter of H > 0 (with probability 1 - x). If the robot does step on the salamander then there is a chance of π that Celia will be identified as the culprit. If there is no accident (the salamander is not stepped on), then Celia’s payoff is V - x^2/2. Peter and Luke both get zero. If there is an accident, but Celia is identified as the culprit, then Celia gets V - x^2/2. Peter gets -H. Luke gets zero. If there is an accident, and Celia is identified as the culprit, then Like (the judge) decides a level of compensation D ∈ R+ for Celia to pay Peter. Celia gets V - x^2/2 - D. Peter gets D - H. Luke gets −(βH - D)^2. b) Write down Celia's expected payoff when she chooses x in step 1.
- Consider the following steps: 1. Celia chooses how much care, x ∈ [0, 1], to take in programming her robot. This effort costs her x^2/2. 2. Nature chooses whether the robot steps on Peter’s pet salamander, leading to emotional harm to Peter of H > 0 (with probability 1 − x). If the robot does step on the salamander then there is a chance of π that Celia will be identified as the culprit. - If there is no accident (the salamander is not stepped on), then Celia’s payoff is V − x^2/2. Peter and Luke both get zero. - If there is an accident, but Celia is not identified as the culprit, then Celia gets V − x^2/2. Peter gets −H. Luke gets zero. - If there is an accident, and Celia is identified as the culprit, then Luke (the judge) decides a level of compensation D ∈ R+ for Celia to pay Peter. Celia gets V − (x^2)/2−D. Peter gets D−H. Luke gets −(βH−D)^2. h) What would β have to equal, in order for Celia to choose the socially optimal level of x in a Subgame Perfect Equilibrium ? We are…Differentiate between adverse selection and moral hazard problems with one examplesGovernment officials must decide how to reduce the amount of Magentum being adulterated in the future. According to Becker, which of the following are options that could get the same expected cost of crime commission? 1 - Increase the probability of detection and conviction and combine that with a low sanction. 2 - Change the opportunity cost of the crime. 3 - Keep a low risk of probability of detection and conviction but impose a very high sanction. 1 and 3 1, 2, 3 1 and 2 2 and 3
