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 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.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 above
- Adverse Selection refers to a situation in insurance markets in which individuals change their behavior after obtaining coverage, resulting in increased insurance costs True or FalseWhich of the following are possible reasons why empirical studies do not always find evidence for adverse selection in the real world? (please choose all that apply) Insurees with higher cognitive ability (though low-risk) were more likely to purchase supplemental insurance Insurers can accurately predict customers risk Insurees misperceive their risk Risk aversion overcomes adverse selection on health risksYou have been recruited as an expert in health economics to recommend what is the best therapy for a group of patients. In the image below you will find the decision tree showing the probabilities for different health states and outcomes for patients undergoing two possible treatments, No drug therapy and Drug therapy. Based on the expected cost, which therapy would you recommend as the least expensive? Explain how you arrived at your recommendation and show your calculations the space provided. No drug theraphy ? Drug theraphy ? HEALTH STATES PROBABILITIES Remain in Good Health 0.5 Develop disease A 0.2 Develop disease B 0.2 Die 0.1 Remain in Good Health 0.53 Develop disease A 0.16 Develop disease B 0.22 Die 0.09 OUTCOMES (Costs) $0 $400 $300 $200 SO $800 $500 $0
- 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 or false, and justify your answer.Patients are charged premiums based on their risk rating.